I.

CHAPTER I

INTRODUCTION

“ Mercantile usage is the raw material,

mercantile law is the manufactured article”,

- Sir Mc Kenzie Chalmers

The law relating to negotiable instruments is the law of commercial world

legislated to facilitate the mercantile commercial activities, thereby making
provision of giving sanctity to the instruments of credit which could be
deemed to be convertible into money and easily exchangeable from one
person to another as well as easily transferable from one banking institution to
another. The above quoted statement made before the Bills of Exchange
Act1882, brings out clearly the process of evolution of mercantile law which
includes the law of negotiable instruments. 1

The mercantile community found in such instruments an easy mode of payment

of money by way of endorsement and delivery or by mere delivery of such
instruments. With the expansion of trade and commerce, negotiable
instruments have assumed international importance. In the absence of such
negotiable instruments, the trade and commerce activities, in the contemporary
world, are likely to be adversely affected as it is impracticable, infeasible
and unworkable for the trading community to carry with it the bulk of the
currency in force.
Negotiable instruments are in fact the instruments of credit being
convertible , exchangeable and redeemable on account of legality of being
negotiated and are easily passable from one hand to another, from one state
to another, from one country to another. Out of the various kinds of negotiable
instruments recognized by law, cheque is considered, by far, one of the most
secure and reliable device of payment throughout the world, particularly in the
sphere of commercial transactions one cannot imagine survival without this
negotiable instrument.

1
Introduction to the First Edn. of Chalmers' Negotiable Instruments Act, at 9
1|Page
Introduction to the Law Relating to Negotiable Instruments

The law relating to negotiable instruments is not the law of one

nation or of one particular demographic area, it is the law of the
commercial world in general, for, it consists of certain principles of
equity and usages of trade which general convenience and commonsense
of justice had established to regulate the dealing of merchants and
mariners in all the commercial co untries of the civilized world. Even now
the laws of several countries in Europe are, at least so far as general
principles are concerned, similar in many respects. Of course, on
questions of detail, different countries have solved the various problems
in different ways, but the essentials are the same, and this similarity of
law is a pre-requisite for the vast international transactions that are
carried on among the different countries.

1 Negotiable Instrument is a ‘Thing’

A negotiable instrument is in more than one sense a ‘thing’. In
deciphering what is meant by a ‘thing’ under law, we must on one hand
avoid the metaphysical niceties about the conception of ‘thing’, and on
the other, the peculiar conception of the word in England, as in the
phrases, ‘things in possession’ and ‘things in action’. In jurisprudence, a
‘thing’ necessarily denotes an object of rights. 2 In that sense every
instrument is a ‘thing’, in so far as the paper on which it is written is
concerned. It is not only in that sense is a negotiable instrument a ‘thing’
also in the sense that it is a physical embodiment of rights.

A person lawfully getting possession of such an instrument

acquires title to it, and the same cannot be said of other instruments.
Again, it represents money and possesses all the characteristics of money
which it represents. For example, it is not tainted by any defect or
fraud in the source from which it flows, so long as its acquisition is

2
Bhashya & Adiga, The Negotiable Instruments Act, 18th Edn., at 1 (2008).
2|Page
 bonafide and for value. It also passes through delivery like cash, and the
person in possession of the instrument can sue on it in his own name. It
also possesses the characteristics of a contract as it embodies either an
order or a promise to pay money. The capacity of the parties to it, the
liability of persons on it and the discharge of such liabilities are governed
mostly by rules belonging to the domain of contracts. It is also regarded
as a chattel; and being so, it has been held that the transfer of such
instruments should be regulated by the law of the place where the
transfer takes place.

2 Meaning of the Term ‘Negotiable’

The term ‘Negotiable’ is one of classification and does not of

necessity imply anything more than that the paper possesses the negotiable
quality. Generally speaking, it applies to any written statement given as
security, usually for the payment of money, which may be transferred by
endorsement or delivery, vesting in the party to whom it is transferred or
delivered a legal title on which he can support a suit in his name. The term
signifies that the note or paper writing to which, it is applied possesses the
requisites of negotiability. 3 A negotiable instrument is one, therefore, which
when transferred by delivery or by endorsement and delivery, passes to the
transferee a good title to payment according to its tenor and irrespective of
the title of the transferor, provided he is bonafide holder for value without
notice of any defect attaching to the instrument or in the title of the transferor,
in other words the principle nemodat quod non habit does not apply. 4

3. Purpose and Origin of Law Relating to N egotiable Instruments

The introduction of negotiable instruments owes its origin to the bartering

system prevalent in the primitive society. The source of Indian law relating to
such instruments is admittedly the English Common Law. The main object of
the Act was to legalise the system by which instruments contemplated by i t

3
Bhashya & Adiga, The Negotiable Instruments Act, 18th Edn., at 1 (2008).
4
Ibid
3|Page
could pass from one hand to hand by negotiation like any other goods. The
purpose of the Act was to present an orderly and authoritative statement of the
leading rules of law relating to the negotiable instruments. The Act intends to
legalize the system under which claims upon mercantile instruments could be
equated with ordinary goods passing from hand to hand. It has, always to be
kept in mind that section 138 of the Act creates an offence and the law
relating to the penal provisions has to be interpreted strictly so that no one can
ingeniously and insidiously or guilefully or strategically be prosecuted.

An attempt at the codification of mercantile usages was made in

France as early as 1818 and the French Commercial Code was later adopted as a
model by other countries on the continent. In England, the movement for
codification was not started till 1880 when Sir McKenzie Chalmers drafted a
bill on the subject. This was enacted as the Bills of Exchange Act, 1882. In
India, an effort in the same direction was made earlier, in 1867, when the
(third) Indian Law Commission prepared a bill. But, for various reasons it was
kept in cold storage for a number of years. In 1879 Mr Arthur Phillips, the
then Law Secretary and a member of the Calcutta Bar, redrafted the bill.
Criticisms were invited on it from banks, chambers of commerce and leading
merchants. This bill, after passing through Select Committees more than
once, was again referred to a new Law Commission in 1879. The
recommendations of the Commission were considered by another Select
Committee and eventually the bill, in a modified form, became the Negotiable
Instruments Act, 1881. 5

The principal source for codification of this law both in England and in India
was the English common law of contracts as modified by the law merchant. 6
But, curiously, there has been a considerable divergence, whether intended or
not, between the two Acts though the raw material for both was the same. The
arrangement of the sections in the English Act is more logical and the
principles enunciated therein are more comprehensive than in the Indian Act.

5
AIR 2001 SC 1161.
6
Law Commission of India — Report No. 11 (September, 1958), on the Negotiable
Instruments Act, 1881

4|Page
 It is submitted by the researcher that to achieve the objectives of
the Negotiable Instruments Act 1881, the legislature has, in its perception and
wisdom, thought i t proper and appropriate to make such provisions in the Act,
for conferring such privileges to the mercantile instruments contemplated
under it and provide special penalties and procedures in case the obligations
under the instruments are not honoured and discharged on time. The
Parliament enacted sections 138 to 147 of the Negotiable Instruments Act to
enhance the acceptability of cheques and to safeguard the payees from
mischievous drawers in case of dishonour of cheque by compelling them to
face criminal prosecution which may ultimately culminate in imposition of
fine extending to double of the cheque amount besides imprisonment
extending upto two years, at the same time providing adequate safeguards to
prevent harassment of honest and bonafide drawers also. 7

The laws relating to the Act are, therefore, required to be read, construed and
interpreted in the backdrop of the objects intended to be achieved by it despite
there being deviations from the general law and the procedure provided for
redressal of the grievances to the litigants. Endeavours to defeat the objectives
of law by resorting to innovative measures and methods are to be discouraged,
lest it may affect the commercial and mercantile activities, ultimately
affecting the smooth and unobstructed running of the economy of the country.

4 Object of Incorporating Section 138

The Negotiable Instruments Act was enacted and Section 138

thereof incorporated with a specified object of making a special provision by
incorporating a strict liability so far as the cheque which is a negotiable
instrument, is concerned. Section 138 of the Act makes a civil transaction to be
an offence by fiction of law. Where any cheque drawn by a person on an
account maintained by him with a banker for payment of any amount of money
to another person is returned by the bank unpaid either because of the amount
or money standing to the credit of that person being insufficient to honour
the cheque or that it exceeds the amount arranged to be paid from that account,
such person, subject to the other conditions, shall be deemed to have
7
Law Commission of India — Report No. 11 (September, 1958), on the Negotiable
Instruments Act, 1881

5|Page
committed an offence under the Section and be punished for a term which may
extend to one year or with fine which may extend to twice the amount of
cheque or with both. To make the dishonour of the cheque as an offence, the
aggrieved party is required to present the cheque to the bank within a period
of six months from the date on which it is drawn or within the period of its
validity, whichever is earlier and the payee or the holder in due course of
the cheque makes a demand for payment of the cheque amount by giving a
notice in writing to the drawer of the cheque within 30 days of the receipt of
information by him from the bank regarding the return of the cheque as
unpaid and drawer of the such cheque fails to make the payment of the
amount within 15 days of the receipt of the said notice.

Section 139 refers to presumption that unless the contrary is proved,

the holder received the cheque of the nature referred to under Section 138 for
the discharge in whole or in part or of any debt or other liability. Section 140
restricts the defence in any prosecution under Section 138 of the Act and
Section 141 refers to the concept of vicarious liability pertaining to cheques
issued by partnership firms and companies. Section 142 provides that
notwithstanding anything contained in the Code of Criminal Procedure no
court shall take cognizance of an offence under the Section except upon a
complaint in writing made by the payee or as the case may be, the holder of
the cheque and that such complaint is made within one month of the date on
which the cause of action arose under clause ( c) of proviso to Section 138 of
the Act. 8

Problem Profile
Apart from the validity, sanctity and applicability of the
above bare mandates of statutory law, there are some larger issues which
could be and should be appropriately addressed in the context of the topic. It
may be recalled that Chapter XVII comprising sections 138 to 142 was
inserted into the Act by the Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988 ). The

8
Ashwani Sarpal, Dishonour Of Cheque Criminal Law In Action, at 6 (2008).
6|Page
object of bringing Section 138 into the statute was to inculcate faith and build
confidence in the efficacy of banking operations and credibility in transacting
business through negotiable instruments by minimizing cash transactions. It
was to enhance the acceptability of cheques in settlement of liabilities by
making the drawer liable for stringent penalties in case of bouncing of
cheques due to insufficient arrangements made by the drawer, with adequate
safeguards to prevent harassment of genuine drawers. It may also be pertinent
to add here that when the offence was originally inserted in the statute in
1988, it carried the provision for imprisonment up to one year, which was
revised to two years following the amendment to the Act in 2002. It is thus
quite manifest and discernible that the legislative purport and intent behind
incorporation of the provision of section 138 and the subsequent amendment
with regard to enhancement of punishment, was to provide a strong and
efficacious criminal remedy in order to deter the worryingly high incidence
of dishonour of cheques.

While the possibility of imprisonment up to two years provides a remedy

of a punitive deterrent nature, the provision for imposing a fine which may
extent to twice the amount of the cheque serves a compensatory purpose. What
must be remembered, reiterated and re-emphasised is that the dishonour of a
cheque can be best described as a regulatory offence that has been put into
place to serve the public interest in ensuring the reliability of these
instruments of credit. The immediate impact of this offence is usually confined
to the private parties involved in commercial transactions but in the
broader perspective the impact is stretched out to the entire mercantile
society at large. 9

However, whatever be the law, we cannot close our eyes to a hard reality
that the incidence of dishonour of cheques has not reduced because the law has
not been implemented with same seriousness and fervor with which it had been
enacted, nor the Courts are ensuring that the trials of these cases take place
in a summary manner as desired and intended by the legislature without

9
Ashwani Sarpal, Dishonour Of Cheque Criminal Law In Action, at 6 (2008).
7|Page
putting complainant and accused on equal footing. Today, the complainant
being holder of the cheque gets more harassed than the accused in pursuing a
complaint under Section 138 of the Negotiable Instruments Act, because of
the fact that every summoning order is assailed on one or the other ground and
the complainant is forced to contest the legality of orders of the Magistrate in
cases under Section 138 at the very initial stage putting complainant to a
greater ordeal and disadvantage.

Further it is imperative to note that the summoning orders are not assailed
actually because there is a patent illegality in the same rather the doors of the
revisional court are knocked by the accused just to delay and constrict the
proceedings before the trial court. The harsh and undeniable reality is that the
statutory rules and procedures also fall flat before such dilatory tactics
because in our democratic judicial set -up, the accused cannot be precluded,
restricted or debarred from agitating and pleading his defence at any stage. In
all cases, complainants are not the companies rather in most of the cases
complainants are individuals and they have to fight an unequal legal battle
against companies, who have enough funds and resources to spend on litigation
and charge it to the company account. 10

No effort is made by these corporate bodies to compromise the matter by

paying off the cheque amount because the legal brains working on the rolls of
such companies know very well that not less than a couple of years would
be cons umed at the trial court level itself for final adjudication of the
matter. It is a matter of common knowledge that when companies are floated
and public issues are brought, huge advertisements are issued giving big
names as directors and promoters of the company. These names are the names
of successful CEOs or directors who have touched zenith in other fields. Due
to these names at the very inception and formation of company, when there is
no wealth or property of the company, the share s of the company are sold at a
premium promising big business and success.

10
Ibid
8|Page
Once money is mopped up from the public, in all those cases where the
companies were created only for the purpose of mopping up hard earned
money of public or to befool them, it is found that those big names disappear
all of a sudden and in almost every litigation those directors who formed part
of the core of the company and gave promises that the company would do
roaring business quietly disappear from the scene or take a plea that they were
not in charge and responsible for business of the company at any point of
time. This is how the problem arises. While the public stands cheated, the
persons who had mopped up wealth and pocketed the public wealth are not
prepared to take responsibility of the monetary loss occasioned to the innocent
stakeholders.

The criminal justice system is essentially an instrument of social control; the

civilized society considers some behaviours so dangerous and destructive that
it either strictly controls their occurrence or outlaws them outright. It is the job
of the agencies of justice to prevent these behaviours by apprehending and
punishing transgressors or deterring their future occurrence. Although society
maintains other forms of social control, such as the family, school, and church,
they are designed to deal with moral, not legal, misbehaviour. Only the
criminal justice system has the power to control crime and punish criminals.
So, the main objectives of the criminal justice system are to prevent the
occurrence of crime, to punish the transgressors and the offenders, to
rehabilitate the transgressors and the criminals, to compensate the victims as
far as possible, to maintain law and order in the society and to deter the
offenders from committing any criminal act in the future. 11

Of late, the relevance of our justice system - both substantive and procedural- a
replica of the British colonial jurisprudence, is being seriously questioned.
Perhaps the criminal judicial system is based on the laws that are arbitrary and
operate to the disadvantages of the poor. They have always come across as law
for the poor rather than law of the poor. It operates on the weaker sections of
the community, notwithstanding constitutional guarantee to the contrary.

11
2010(7) RCR (Criminal) 1484
9|Page
There are hardly any people to advocate for the new laws to help the poor,
there are practically none to pressurize the government and the legislature to
amend the laws to protect the week and the poor. Even after five decades of
independence, no serious efforts have been made to redraft penal norms or to
radicalize punitive processes. The criminal justice system is cumbersome,
expensive and cumulatively disastrous. The poor can never reach the temple
of justice because of heavy costs involved in gaining access and the mystique
of legal ethos. The hierarchy of courts, with appeals after appeals, puts legal
justice beyond the reach of the poor. Making the legal process costlier is an
indirect denial of justice to the people and this hits hard on the lowest of the
low in society. In fact, the legal system has lost its credibility for the weaker
section of the community. Of course, the judiciary in recent years has taken a
lead and has come forward with a helping hand to give some relief to the
victims of criminal justice in a limited way.

Some of the recent developments that have taken place during the last few
years in our judicial delivery system to seek redress and accord justice to the
poor are worth mentioning. The importance of these developments to the
delivery system of justice can’t be ignored. They have revolutionized our
judicial jurisprudence and will go a long way in giving relief to the large
masses and the common man. Criminal law, which reflects the social ambitions
and norms of the society, is designed to punish as well as to reform the
criminals, but it hardly takes any notice of by product of crime- i .e. its
victim. The guilty man is lodged, fed, clothed, warmed, lighted, and
entertained in a model cell at the expense of the state, from the taxes that the
victim pays to the treasury. And, the victim, instead of being looked after,
is contributing towards the care of prisoners during his stay in the prison. In
fact, it is a weakness of our criminal jurisprudence that the victims of crime
don’t attract due attention. 12

The object and the ingredients under the provisions, in particular, Sections
138 and 139 of the Act cannot be ignored. Proper and smooth functioning of
all business transactions, particularly, of cheques as instruments, primarily

12
http://www.legalserviceindia.com/articles/op.htm, accessed on april 16, 2019.
10 | P a g e
depends upon the integrity, uprightness and honesty of the parties. In our
country, in a large number of commercial transactions, it has been noted that
the cheque has been issued merely as a device not only to stall but even to
defraud the creditors. The sanctity and credibility of issuance of cheques in
commercial transactions has been eroded to a large extent over a period of t
ime. Undoubtedly, dishonour of a cheque by the bank causes incalculable loss,
injury and inconvenience to the payee and the entire credibility of the business
transactions within and outside the country suffers a serious setback. The
remedy available in a civil court is a long-drawn matter and an unscrupulous
drawer normally takes various pleas to defeat the true and genuine claim of the
payee. Parliament, in order to restore the credibility of cheques as a
trustworthy substitute for cash payment enacted the aforesaid provisions.

Viewed from another perspective, the efficacy of enactments relating to

dishonour of cheques have to be weighed and construed in the light of the
existing socio- economic scenario of our country. The over-burdened judicial
infrastructure in this country is performing under great stress. Poor judge
population ratio, stifling working conditions, lack of adequate facilities to
judicial officer s and problems of like kind get compounded when new laws
enacted by the legislature bring in additional burden of cases without
corresponding addition to the infrastructure to take care of the impact which
such legislations would have on the already overworked judicial system. One
of the most substantial, discernible and prolific contributions to the existing
litigation in the contemporary time has been on account of a huge bulk of
cases filed under section 138 of the Negotiable Instruments Act. Cases
running in gigantic numbers are pending in different courts in every corner of
the country especially in urban areas which have virtually choked and
throttled the system by sheer magnitude of the work and by the tremendous
effort involved in their adjudication and final disposal. Alternative Dispute
Redressal (ADR) methods adopted for the disposal of these cases, like daily
lok adalats, mediation and conciliation proceedings have made little impact on
the mounting arrears so much so on account of the inflow of a large number
of cases, a section of the bar is specializing in and devoted to only this
branch of law. Almost all banking institutions and commercial set -ups have a
specialized legal section manned by law graduates having expertise in cheque

11 | P a g e
bouncing cases and they are paid handsomely just for two things – either to
expedite the trial and compel the drawer of the cheque to come to
negotiable terms or to delay the trial on one ground or the other for the
purpose of buying time for repayment of the cheque amount.

With the comprehensive progress and economic development of a

nation, society as a whole prospers, however, growing complexities have
forced the man to find out and explore some new and innovative modes of
convenience. The exchange of cash has been immensely replaced by cheque
which undoubtedly is a very convenient, easy and handy mode of payment but
its use (rather to say misuse) has also led to disasters. It cannot be lost sight
of, that commercialization and extensive business transactions have led to
forgeries and cheating in various ways, and one such way is frequent
dishonouring of cheques with malafide intention. In such situation not only
people lose faith in cheques but even smooth running of business is adversely
affected sometimes leading to bankruptcy of a concern and sometimes even
costs a person earning of whole of his life. To avoid such eventualities, the
legislature in its utmost wisdom has incorporated section 138 in Negotiable
Instruments Act, 1881 by amendment in 1988 13 which not only punishes a
dishonest and mischievous debtor who finds ways and means to avoid
payments but sometimes also saves genuine debtor from unscrupulous tactics
adopted by the holder of the cheque (once he has made the payment but had
also issued cheque as an ad vance or as a security or in anticipation of his not
being able to make the payment). However it is basically to facilitate the
genuine creditors who trust upon the drawer and enter into business
transaction with assurance that he shall be getting his mone y back in time.
Section 138 of the Act comes into picture where payment insured by issuing
a cheque is not honoured.

This is a provision dealing with a criminal offence and provides punishment for
mischievous drawers of the cheque, yet the modern approach is to use it as an
indirect but effective tool for refund of money. The general practice of
recovery of amount through criminal prosecution is nothing but misuse of
provision of section 138 of the Act that punishes the offendor and does not

13
Ibid.
Sen Gupta, Negotiable Instruments Act, 1881, at 615 (1998).

12 | P a g e
aim at recove ry of the amount, which is the ambit of civil courts. Infact section
138 of the Act has been considered to be cheaper, quicker and easier mode to
get recovery of dues as the criminal courts practically play an important role
in getting the payment from off endor for the party launching the prosecution
by making efforts and getting the offence compounded. 14

In the last decade, the litigation under section 138 of the Act has multiplied
manifold. Cheques are in immense use instead of cash as mode of payment.
Increase of commercialization, extensive business opportunities, stepping in
of foreign companies, banks, finance companies, cellular companies etc. has
accelerated this litigation pertaining to dishonouring of cheques. With the
increasing use of cheque, i ts bouncing, forgery and other kinds of misuse have
also come to light. This provision in recent times has infact been adopted as an
indirect mode of recovery of the cheque amount as well as other outstanding
dues. Penal provision under section 138 of the Act was incorporated with the
basic aim of punishing dishonest debtor who used to issue cheque without any
fear and sense of responsibility. Sometimes the fear of punishment which
includes imprisonment and fine compel the drawer to fulfill unjust demands o
f the complainant whereas on the other hand, creditor finds a shorter and
simpler method to get his money back without going through the dilatory
process of filing suit for recovery in civil court, without much physical and
mental agony and as well as by avoiding payment of ad-valorem court fees.

Initial changes brought about in the year 1988 in Negotiable Instruments Act
by which section 138 was incorporated and further far – reaching amendments
in the year 2002 though tried to simplify the provision and procedure and to
stall the delay but still this offence is so technical that on each and every
step, litigant has to remain very vigilant and has to proceed in a strict
methodological manner. Sometimes a morsel of ignorance and bonafide
mistake, for example in calculation of time limit for issuance of legal demand
notice or in discerning and applying the principle of vicarious l iability while
prosecuting partners of firm or directors of companies, makes out a legal
ground to reject and dismiss the otherwise genuine case which causes grave
injustice and harassment to parties.

14
Sen Gupta, Negotiable Instruments Act, 1881, at 615 (1998).

13 | P a g e
As per the researcher’s view, different and contradictory interpretations of
various provisions by different higher courts have created obscurity for the
trial courts as to how the matter should be dealt with so that no prejudice is
occasioned to any of the parties. Inconsistent judicial views with regard to
some crucial parameters viz. territorial jurisdiction where a complaint under
section 138 of the Act can be instituted, summary procedure whether
mandatory or not, stage at which compounding may be permitted etc. have
proliferate uncertainty in final decisions, thereby benefiting neither the
complainant nor the accused nor the judicial system as a whole. In the
contemporary scenario, this provision under section 138 of the Act has become
so vital that it cannot be expected under any stretch of imagination that no
litigation under this provision would be pending adjudication in any court in
India situated even in the remotest of areas.

The object is also to avoid the malign trade practice of frequently or

intentionally issuing cheques without sufficient funds. The legislature has also
added safeguards in the provisions that prior to initiation of criminal
prosecution the drawer can pay the cheque amount and settle the dispute within
fifteen days of receipt of notice from the aggrieved party. Number of
presumptions under sections 118 and 139 of the Act further fortify the case of
complainant which benefits him not only to prove some fact s but where the
said presumptions are not rebutted by drawer, it may go against him. The recent
amendments have impressed more upon the trial of the offence under section
138 of the Act in a summary manner.

The procedure is simplified and evidence can be adduced through affidavits

and memos or certified copies of bank record can be accepted without
bothering the officials of the concerned bank to come to the court to prove
the same. Different modes of service of accused and witnesses, time bound
trial and to condone delay in filing of the complaint are the major amendments
that have advanced the interest of justice. The court can ignore super technical
and frivolous pleas of accused in order to enforce the real object and purpose
behind introducing these pen at provisions. After all bouncing of a ball may be a
moment of fun and joy but bouncing of a cheque may have the consequence of putting its

14 | P a g e
drawer behind the bars.15

Objectives of the Study

In the backdrop of the above perspective, the present study has been
undertaken with the objective of in- depth contemplation and deliberation upon
the following points:

Need for strict implementation of penal provisions with a deterrent hand,

keeping in view the burgeoning cases of dishonour of cheques and escalating
trends of l itigation under Section 138 of the Act.

Core problem areas in the spheres of dilatory procedure, ineffective

implementation of existing legal framework, bulk pendency and exponential
increase in fresh institution of cases, especially in light of the fact that the
provisions pertaining to dishonouring of cheque under the Act, even after
extensive amendments, have failed to serve the objective of the statute.

The law relating to dishonouring of cheques is inherently technical in nature

and ambit; therefore taking the benefit of technical infirmities, even the
most unscrupulous debtors escape unpunished leaving the destitute creditors
with no other option but to seek long drawn remedy of recovery before the
civil court, that too within the statutory period of limitation of three years
and on payment of ad-valorem court fees.

The compensatory aspect is being given precedence over the punitive aspect
due to which the debtors can very well comprehend and surmise that even after
lapse of few year s before the trial court, they would get an opportunity to
escape unblemished by just offering to make the payment of the cheque
amount to the complainant; This protective legislation is not only being
misused by drawers but also by holders of cheques and holders in due course to
exploit genuine drawers and even in such cases where the cheque has not been drawn for
payment of any legally recoverable debt, the statutory presumptions under sections 118 and
139 continue to favour the complainant.
The continuous misuse of cheques as instruments of credit, has posed a real
threat to the sustainability, credibility and existence of negotiable instruments
in the commercial world. The law relating to dishonour of cheque, being

15
Ibid.,Supra Note 9, at 12.

15 | P a g e
closely and overpoweringl y guarded by v aried technical aspects at every
stage, has failed to protect and serve the interests of a common man. It is not
only the drawer of the cheque but also the holder and holder in due course of
law, who are indulging in active misuse of this protective legislation.

The judicial view with regard to compensatory aspect and compounding of

offence at any stage has diluted the deterrent effect of the statutory provisions
which were otherwise purported to be strongly punitive in nature. In the light
of the above core issues, a strong need has arisen to address these problems
urgently and suggest reformatory measures so that the provisions pertaining
to dishonour of cheque in India are not reduced to mere dead letters of law.

Plan of the Study

Different aspects relating to dishonour of cheques have been studied

comprehensively including the object of legislation, the issues pertaining to
compounding of the offence, principle of strict liability, extent of civil and
criminal liability, principle of vicarious liability and suggestions/measures
to improve the efficacy of the existing legal framework. The study has been
conceptualized into various chapters as described and briefly summarised
hereinafter –

Chapter 1 of the work briefly introduces the topic of dishonouring of the

cheque with a briefing about transformation of the monetary framework from
the bart er system to the banking system. It further enumerates the reason for
development of various kinds of negotiable instruments as well as the need for
framing of laws with regard to the same In this chapter, the researcher has also
dwelled upon the problem profile, Objectives of undertaking the present study,
hypothesis, review of literature as well as the research methodology for
undertaking the present study.

Chapter 2 focuses on the historical development related to negotiable

instruments through various ages. It ranges from the historical development of
bills of exchange, hundies , promissory notes, to the development of banking

16 | P a g e
system including cheques, pay orders and drafts. A brief discussion
regarding entactment of the Negotiable Instruments Act, 1881 along with
incorporation of section 138 to 147 pertaining to dishonouring of cheque, has
also been made to look into the need for legislating on the said subject.

Chapter 3 aims at defining the term cheque in order to ascertain its true nature.
This chapter further moves towards describing the essentials and
characteristics of a valid cheque as well as the ingredients of liability under
section 138 of the negotiable inst ruments Act. A brief discussion with regard
to topics like endorsement of cheque, reasons for dishonor thereof, aspect of
negotiability, bar of statutes and constitutionality of the provisions relating to
dishonouring of cheques has also been made in this chapter.

Chapter 4 of the present work deals with the presumptions available to the
holder and holder in due course, under sections 118 and 139 of the
Negotiable Instruments Act. The present chapter further dewlap upon the
aspect of mens rea and the concepts of strict liability under section 140 of the
Act, presumption of innocence in favour of the accused, preponderance of
probabilities as well as the standard of proof.

Chapter 5 of the work has been divided into two discernible parts, the first
of which pertains to the aspect of compounding of the offence of dishonour of
cheque, as envisaged under section 147 of the Act. This part further throws
light upon the aspects of graded system of costs as well as requirement of the
consent of the complainan t for compounding of the offence. The second part of
the chapter deals with the compensatory and punitive aspects of the offence
under secti on 138 of the Act, with a detailed insight into the provisions of
section 357 of the Code of Criminal Procedure 1973 . Further an attempt to
establish co-relation between compounding of the offence and compensatory
aspect under the light of plethora of judicial pronouncements of various
courts, has also been made.

Chapter 6 focuses on the concept of vicarious liability a s envisaged under

section 141 of the Negotiable Instruments Act. While throwing light on the
above stated concept ,this chapter also discusses various connected issues like
arraying of company as accused, issuance of notice to company as well as
17 | P a g e
Directors, prosecution of the company which has entered into the process of
winding up and raising of specific averments regarding the role played by
officers of the company.

Chapter 7 of the work enumerates the role, the judiciary has played in
interpreting the various provisions of the Negotiable Instruments Act. The
present chapter reflects as to how the judicial system of the country has
attempted to frame various guidelines and to set an instructive mode for the
legislature where either the laws in existence were not clear or were required
to be amended to cope up with the changing socio economic set up of the
country.

Chapter 8 being the last chapter of the present work deals with an in depth analysis of
the provision existing in the laws along with an attempt to bring forth the
lacunae prevailing in the present structure of the legal frame work and further
stating some suggestions which can be termed as the need of the hour to
strengthen the law relating to dishonor of the cheque in India.

Thus to sum up, it can be said that the present work attempts to analyse the
various provisions incorporated in the laws in force in India , aiming at
penalizing dishonouring of cheques as well as aiming at compensating the
payee for loss suffered by him on account of default on the part of the drawer
of the cheque. Further after analyzing various substantive and procedural laws
an attempt has been made to point out the short comings in the existing
jurisprudence along with suggestions for reformative measures with a humble
approach and expectation that this may lead to desired change in the
prevalent system.

18 | P a g e
 CHAPTER II
HISTORICAL BACKGROUNDS

2.1 Introduction

The early origin of Negotiable Instruments is a subject of speculation among

text-writers. In primitive societies, the system of bills of exchange could not,
of course, have existed; for firstly, money which it represents did not come into
circulation till long after, and secondly, the art of writing was a thing unknown
to them. When the system of bartering, by which crude and uncivilized
societies carried on their commerce, was found inconvenient, a common
medium of exchange and a representative of property of an easily convertible
character was found necessary, and thus money came into use. It might have
had its humble origin in cowries’ shells, brass or copper rings; but when once
the utility of money surfaced, it never was lost sight of. With the progress of
civilization, nobler metals displaced the baser ones, and the use of gold and
silver as instruments of exchange was found to be generally prevalent in all
civilized countries. With facility of communication between countries, and
security of peace between nations, commerce of the world grew apace, and one
nation after another endeavourer to cast its supremacy. 16

The Phoenicians, Grecians and Carthaginians were more or less the chief
commercial nations of the ancient world. The routes along which the vast
commerce was carried on were insecure, and merchants carrying specie or
coins were robbed of their wealth by roving pirates on sea and marauding
robbers on land. Money by itself did not obviate all these difficulties arising
from the multiplicity of commercial transactions and in the course of centuries,
there came into existence the idea of exchange, whereby letters of credit,

16
C.J.S.423 Negotiable Instrument Act, at 2.

19 | P a g e
generally called bills of exchange, from a merchant in one country, to his
debtor, a merchant in another, were issued requiring the debt to be paid to a
third person who carried the letter to the place where the debtor resided. A bill
of exchange was thus originally an order to pay a trade- debt, and the system of
such bills afforded a convenient and facile way for the payment of debts in one
country due to a person in another, without the danger or the burden of
carrying money in specie. In its origin, then, a bill of exchange affected the
transfer of trade- debts of persons residing in distant countries and when once
the advantages of such a course were realized, the system was extended to
apply to inland trade debts, and gradually to private debts also. By the
scrupulous fulfillment of the obligations arising under such instruments in the
early stages of their growth, confidence was begotten, and from that
confidence arose the peculiar use to which such instruments are now put. The
instruments are now merely instruments of credit readily convertible into
money and easily passable from one hand to another. With expanding
commerce, the growing demands for money could not be met by mere supply of
coins, and these instruments of credit took the function of money which they
represented, and thus became, by degrees, articles of traffic. Thus, the
negotiable instrument came to be largely employed by merchants as an
effective substitute for money. 17 The most striking characteristic of money as
distinguished from other species of property is the facility and freedom with
which it circulates. Its possession with bearer is conclusive title to those
who deal with him in good faith; and one taking i t, therefore, in the course
of business need look no further than the face of the coin and the possession
of the person from whom he receives it. These are qualities which every
representative of money must possess in order to answer its purpose
effectively; and a negotiable paper does possess them in an eminent degree.

In Gibson v. Minet, Eyre, C. B. said that the wit of man cannot devise a thing
better calculated for circulation. The value of the wring, the assignable
quality of it, and the particular mode of assigning it, are created and
determined in the original frame and constitution of the instruments itself; and

17
C.J.S.423 Negotiable Instrument Act, at 2.
20 | P a g e
the party to whom such a Bill of Exchange is intended, has only to read it, need
look no further and has nothing to do with any private history that may
belong to it. 18

Credit is however not only the keystone of modern commerce, but also the
ligament of modern industries and enterprises, and so long as credit has these
important functions to perform, instruments of credit will also continue to
be in use; and the present perhaps complicated, but certainly convenient
practice and rules relating to exchange and the instruments effecting such
exchange form a necessary part of the knowledge to be acquired by any
practical lawyer or a modern businessman.

The law as to bills of exchange and other negotiable securities forms a branch
of the general body of the Law Merchant and is comparatively of recent origin.
The origin of these instruments can be traced to the usage and custom of
merchants and traders which Courts of law have adopted as settled law, in
view of the general interests of trade and the convenience of the public. Thus, a
general usage, being ascertained and ratified by the decisions of Courts of law,
becomes a part of general law of the country which the Courts are bound to
recognize. Bills of exchange seem to have been brought into use by the
Florentines in the twelfth and the Venetian s in the thirteenth century. Though
in England, there is reason to believe that bills of exchange were known
earlier, their use does not seem to have been general, even as late as 1622 .
About the close of the sixteenth century, the practice of making bills payable to
order and of transferring them by endorsement took its rise. At first, such bills
were allowed only between merchants in foreign countries, but were gradually
extended to traders in the same country, and finally to all persons, whether
traders or not. About this time, the usage among merchants of making
promissory notes payable to bearer or to order began to prevail and was more
than once even recognized by Courts in England. But in 1703 Lord Holt who
was then the Chief Justice of England, opposed this extension of negotiability
and persistently refused to recognize the custom of merchants in the case of
promissory notes and the Legislature had to end the unseemly conflict by

18
In Gibson v. Minet, Eyre,
21 | P a g e
passing the Statute whereby promissory notes were made capable of being
assigned by endorsement. 19

2.2. Advent of Promissory Notes

Promissory note is an offspring of western business world. After the decline of

barter system of economy, commercial transactions by use of currency came
into being. With the advancement of business and industry, it has become
inevitable to have credit transactions. In that process it further became
inevitable to have a document in token of credit transactions with an
understanding to return the amount borrowed at a later point of time. Common
people also used to borrow money to meet their requirements and in that
process promissory note became more popular.

With the increasing use of promissory notes, disputes regarding the same also
started proliferating day- by- day. Under those circumstances, the British
regime introduced a separate and distinct Act for promissory notes. The said
legislation labeled as the Negotiable Instruments Act came into force for the
first time in India in 1881. The British Rulers considered cheques as well as
bills of exchange also as negotiable instruments along with promissory notes.

There is no specific law in ancient India regarding negotiable instruments.

Nothing was mentioned in ancient law books of Hindus and Muslims about
negotiable instruments. Whenever a dispute arose regarding a negotiable
instrument like hundi, Courts used to apply conventions and customary law
prevailing among the merchant community of those respective communities.
In those circumstances, the British colonial government enacted Negotiable
instrument Act in 1881. From the beginning, promissory notes are common
even among middle class and ordinary people. 20

Middle class people use to borrow money from their friends, relatives or
money lenders by executing a promissory note, to meet their immediate or
urgent domestic needs or requirements. With the advancement of chit fund and
Banking transactions, promissory notes are becoming more popular. Chit Fund
companies, commercial Banks and other various business establishments are
taking promissory notes from their customers, in some cases as security and in

19
In Gibson v. Minet, Eyre,
20
Sharma and Mago, The Negotiable Instruments Act, 1881, at 10 (2005).
22 | P a g e
some cases as collateral security while lending money or advancing loans. It is
a fact that in most cases people used to execute a promissory note while
borrowing money. But promissory note can be executed even without
borrowing money. In some cases a person may be liable to pay same amount
to another person even though he did not borrow any amount from such
person. He may execute a document in favor of that person promising to pay
that amount to him after some time. Such a document is called a promissory
note. That means a promissory note need not be in token of borrowing. It is
something more than that. Promissory note is a combination of two words
Promise and note. Promise‘ implies an understanding or agreement to pay
whereas Note‘ implies written document. If these two words are clubbed
together, it is easy to understand the real meaning and concept of the word
‗promissory note‘ and in that process, it can be said that promissory note is a
document executed by one person promising to pay the amount mentioned
there in after some time to the person mentioned there in.

But every document agreeing or promising to pay an ascertained amount is not

a promissory note. That apart from promise to pay there must be certain
distinct features to make a document a promissory note. If these special
features are absent in a document, it cannot be considered as promissory note.
It may be an agreement or receipt or bond or something else. Most of the
promissory notes being used in trade and commerce come under the purview of
Negotiable Instruments Act. But, there are certain other promissory notes
which do not come under the ambit of this Act. 21

There is no rule that promissory note should be written only on paper.

Technically speaking, promissory note can be executed even on a cloth or
on paper or any material or substance that can be used as substitute for paper.
The main object behind this principle is that promissory note should be in a
visible form. Now -a-days, printed promissory notes are available in the
market with necessary blank spaces which can be filled up as per specific
requirements . Most of the chit fund companies, banks and other financial
institution and money lenders are using printed promissory notes with
necessary blanks pertaining to names of parties, date, amount, rate of interest
etc.

21
Sharma and Mago, The Negotiable Instruments Act, 1881, at 10 (2005).
23 | P a g e
The basic feature of a promissory note is that it should be in writing and also
signed or thumb impression by the maker. The amount mentioned in the
promissory note should be paid in the form of money only, it should be kept in
mind that even if promissory note was executed in connection with the sale
or purchase of any article or property, the repayment should not be i n the form
of goods or property but by way of money lone. The amount payable by the
executant of the promissory note should be specifically and clearly mentioned
in the promissory note. It will be mentioned in the promissory note that the
amount mentioned there in will be paid along with certain rate of interest.
Another important feature for a promissory note is that there cannot be any
condition or conditions regarding the payment of amount mentioned in the
promissory note, in most of promissory notes, these words will be absent. It
has to be understood that ‗Unconditional undertaking to pay‘means payable on
demand.

However in some cases a time duration may be fixed for payment of the
amount mentioned in the promissory note. If a promissory note is executed
under a condition of some future incident which is uncertain to happen, it will
be considered as conditional payment and such an instrument will not be
considered as a promissory note. However, it has to be borne in mind that a
promissory note with a condition regarding the future incident that is uncertain
to happen is still a promissory under Indian Stamp Act.

Historical Development in Respect of Bill o f Exchange

Bill of exchange, is a form of negotiable instrument, the history of which, is

though somewhat obscure. Bills of exchange were probably invented by
Florentine Jews. They were well known in England in the middle ages, though
there is no reported decision on a bill of exchange before the year 1603. At
first, use thereof seems to have been confined to foreign bills between English
and foreign merchants. It was afterwards extended to domestic bills between
traders, and finally to bills of all persons, whether traders or not. The
foundations of modern English law were laid by Lord Mansfield with the aid
of juries of London Merchants. No better tribunal of commerce could have
been devised. Subsequent judicial decisions have developed and systematized

24 | P a g e
the principles thus laid down. 22
Before 1882 the English law was to be found in statutes dealing with isolated
points, and about 2600 cases scattered over some 300 volumes of reports. The
Bill of Exchange Act, 1882 codifies for the United Kingdom the law relating
to bills of exchange, promissory notes and cheques. One peculiar Scottish rule
is preserved, but in other respects uniform rules are laid down for England,
Scotland and Ireland. Two salient characteristics distinguish negotiable
instruments from other engagements to pay money. In the first place, the
assignee of a negotiable instrument, to whom it is transferred by endorsement
or delivery according to its tenor, can sue there on in his own name and
secondly, he holds i t by an independent title. If he takes it in good faith and
for value, he takes it free from ―all equities that is to all defects of title
or grounds of defence which may have attached to it in the hands of any
previous party. 23 These characteristic privileges were conferred by the law
merchant, which is part of the common law, and are now confirmed by statute.
A bill in its origin was a device to avoid the transmission of cash from place to
place to settle trade debts. Now a bill of exchange is a substitute for money. It
is immaterial whether it is payable in the place where it is drawn or not. It is
immaterial whether it is stated to be given for value received or not, for the
law itself raises a presumption that it was drawn for value. But though bills are
a substitute for cash payment, and though they constitute the commercial
currency of the country, they must not be confounded with money. No man is
bound to take a bill in payment of debt unless he has agreed to do so. If he does
take a bill, the instrument ordinarily operates as conditional and not as
absolute payment. If the bill is dishonored the debt revives. Under the law‘s of
some continental countries, a creditor, as such, is entitled to draw on his debtor
for the amount of his debt, but in England the obligation to accept or pay a bill
rests solely on actual agreement. A bill of exchange must be in the form of
an unconditional order to pay. If an instrument is mad e payable on a specified
contingency, or out of a particular fund, so that its payment is dependent on
the continued existence of that fund, it is invalid as a bill, though it may, of
course avail as an agreement or equitable assignment. In Scotland it has long

22
http.en.m.wikisource.org, accessed on april15, 2019.
23
Ibid
25 | P a g e
been the law that a bill may operate as an assignment of funds, in the h ands
of the drawee.

Bill of exchange must be stamped, but the act does not regulate the stamp. It
merely saves the operation of the stamp law‘s, which necessarily vary from
time to time according to the fluctuating needs and policy of the exchequer.
Under the Stamp Act1891, bills payable on demand are subject to a fixed
stamp duty of one penny, and by the Finance Act 1899, a similar privilege is
extended to bills expressed to be payable not more then three days after sight
or date. The stamp may be impressed or adhesive. All other bills are liable to
an ad valorem duty. Inland bills must be drawn on stamped paper, but foreign
bills, of course, can be stamped with adhesive stamps. As a matter of policy,
English law does not concern itself with foreign revenue laws. For English
purposes therefore, it is immaterial whether a bill drawn abroad is stamped
in accordance with the law of its place of origin or not. On arrival in England
i t has to conform to the English stamp laws.

A bill of exchange is payable on demand when it is expressed to be payable

on demand, or at sight, or on presentation or when notice for payment is
expressed. In calculating the maturity of bill‘s payable at a future time ,
three days, called days of grace, must be added to the nominal due date of the
bill. For instance, if a bill payable one month after sight is accepted on the 1 st
of January, it is really payable on the 4 th of February, and not on the 1 st

February as its tenor indicates. On the continent generally days of grace have
been abolished as anomalous and misleading. Their abolition has been
proposed in England, but it has been opposed on the ground that it would
curtail the credit of small traders who are accustomed to bill‘s drawn at certain
fixed periods of currency. When the last day of grace is a non -business day
some complicated rules come in to play. Speaking generally, when the last
day of grace falls on Sunday or a common law holiday the bill is payable on
the preceding day, but when it falls on a bank holiday the bill is payable on
the succeeding day. 24 Complications arise when Sunday is preceded by a
bank holiday and to add to the confusion, Christmas day is a bank holiday is

24
Ibid
26 | P a g e
Scotland, but a common law holiday in England. When the code was in
committee an attempt was made to remove these anomalies, but it was
successfully resisted by the bankers on alleged grounds of practical
convenience.
By the acceptance of a bill the drawee becomes the principle debtor on the
instrument and the party primarily liable to pay it. The acceptor of a bill ―b y
accepting it engages that he will pa y it according to the tenor of his
acceptance and is precluded from denying the drawer ‘s right to draw or the
genuineness of his signature. The acceptance may be either general or
qualified. As a qualified acceptance is so for a disregard of the drawer‘s order,
the holder is not obliged to take it, and if he chooses to take it he must give
notice to antecedent parties, acting at his own risk if they dissent. The drawer
and endorsers of a bill are in the nature of sureties. They engage that the bill
shall be duly accepted and paid according to its tenor, and that if it
dishonored by non-acceptance or non-payment, as the case may be, they will
compensate the holder provided that the requisite proceedings on dishonour
are duly taken. Any endorser who is compelled to pay the bill has the like
remedy as the holder against any antecedent party. 25

A person who is not the holder of a b ill, but who backs it with his signature,
thereby incurs the liability of an endorser to a holder in due course. An
endorser may be express term either restrict or charge his ordinary liability
as stated above. Prima facie every signature to a bill is presumed to have been
given for valuable consideration. But sometime this is not the case. For
friendship, or other reasons, a man may be willing to lend his name and credit
to another in a bill transaction. Hence arise what are called accommodation
bills. Ordinarily the acceptor gives his acceptance to accommodate the
drawer. But occasionally both drawer and acceptor sign to accommodate the
payee, or even a person who is not a party to the bill at all. The criterion of
an accommodation bill is the fact that the principal debtor according to the
instrument has lent his name and is in substance a surety for someone else. The
holder for value of an accommodation bill may enforce it exactly as if it was an
ordinary bill, for that is the presumable intention of the parties. But if the bill

25
Ibid
27 | P a g e
is dishonoured the law takes cognizance of true relations of the parties, and
many of the rules relating to principal and surety come into play. Suppose a bill
is accepted for the accommodation of the drawer. It is the drawer‘s duty to
provide the acceptor with funds to meet the bill at maturity. If he fails to do so,
he cannot rely on the defence that the bill was not duty presented for payment
or that he did not receive due notice of dishonour. If the holder, with notice of
the real state of the facts, agrees to give time to the drawer to pay, he may
thereby discharge the acceptor. 26

The holder of a bill has some special rights and duties. The holder is the
mercantile owner of the bill, however in order to establish his ownership he
must show a mercantile title. The bill must be negotiated to him, that means it
must be transferred to him according to the forms prescribed by mercantile
law. If the bill is payable to order, he must not only get possession of the bill,
but he must also get a valid endorsement of the previous holder. If the bill is
payable to bearer it is transferable by mere delivery. But to get the full
advantages of mercantile o wnership th e holder mus t b e a ―holder in due
course that is to say, he must make out three business conditions. Firstly, he
must have given value or he should press forth his claim through some holder
who has given value. Secondly, when he takes the bill, it must be regular on
the face of it. The bill must not b overdue or known to be dishonoured. An
overdue bill, or a bill which has been dishonoured, is still negotiable, but in a
restricted sense. Thirdly, he must take the bill bonafidely without notice of
any defect in the title of the transferor, as, for instance, that the bill or
acceptance had been obtained by fraud, coercion or for an illegal
consideration. If he satisfies these three conditions he obtains an indefeasible
title and can enforce the bill against all parties there to. 27

A person who claims through a forged signature has no title himself, and cannot
give a title to anyone else. Two exceptions to this general rule require to be
noted. First, a banker who in the ordinary course of business pays a demand
draft held under a forged endorsement is protected. Secondly, if a bill be
issued with material blanks in it, any person in possession of it has prima facie

26
Ibid
27
Ibid
28 | P a g e
authority to fill them up, and if the instrument when complete gets into the
hands of a holder in due course the presumption becomes absolute. As between
the immediate parties the transaction may amount to forgery, but the holder in
due course is protected. The holder of a bill has special duties which he must
fulfill in order to preserve his rights against the drawers and endorsers. They
are not absolute duties, they are duties to use reasonable diligence. When a bill
is payable after sight, presentment for acceptance is necessary in order to fix
the maturity of the bill. Accordingly the bill must be presented for acceptance
within a reasonable time .When a bill is a payable on demand it must be
presented for payment within a reasonable time. When it is payable at a future
time it must the presented on the day that it is due. If the bill is dishonoured the
holder must notify promptly the fact of dishonour to any drawer and endorser
he wishes to charge. If, for example, the holder only gives notice of
dishonour to the last endorser, he could not sue the drawer unless the last
endorser or some other party liable has duly sent notice to the drawer when a
foreign bill is dishonoured the holder must cause i t to be protested by a
notary public. The bill must be noted for protest on the day of its dishonour.
If this be duly done, the protest, i. e. the formal not arrival certificate
attesting the dishonour, can be drawn up at anytime as of the date of the
noting. A dishonoured inland bill may be noted, and the holder can recover the
expenses of noting but no legal consequences in practice, however, noting
is usually accepted as showing that a bill has been duly attach thereto,
presented and has been dishonoured. Sometimes the drawer or endorser has
reason to expect that the bill may be dishonoured sometimes the drawer or
endorser has reason to expect that the bill may be dishonour b y the drawee. In
that case he ma y insert the name of a ―referee in case of n eed ―but whether
he does so or not, when a bill has been dul y noted for protest, any parson
may, with the consent of the holder, intervene for the honour of any party
liable on the bill. If the bill has been dishonoured by non acceptance i t may be
accepted for honour supra protest. If it has been dishonoured by non - payment
it may be paid supra protest. When a bill is thus paid and the proper formalities
are complied with, the person who pays becomes invested with the rights and
duties of the holder so far as regards the party for whose honour he has paid
the bill, and all parties antecedent to him.

29 | P a g e
A bill of exchange is the most cosmopolitan of all contracts. It may be drawn
in one country, payable in another, and endorsed on its journey to its
destination in two or three more. The laws of all these countries may differ. A
man must be expected to know and follow the law of the place where he
conducts his business, but no man can be expected to know the laws of every
country through which a bill may travel. For safety of transmission from
country to country bills are often made out in sets. The set usually consists
of three counter parts, each part being numbered and containing a reference to
the other parts. The whole set then constitutes one bill, and the drawee must be
careful only to accept one part, otherwise if different accepted parts get into
the hands of different holders, he may be l iable to pay the bill twice. Foreign
bills circulating through different countries have given rise to many intricate
questions of law. But the subject is perhaps one of diminishing importance,
as in man y t rades the s ystem of ―cable transfers‖ is superseding the use
of bills of exchange.

In fundamental principles there is general agreement between the laws of all

commercial nations regarding negotiable instruments. The law respecting
negotiable instruments may be truly declared, in the language of Cicero, to be
in a great measure not the law of a single country only, but of the whole
commercial world. Non erit lex alia Romae, alia Athenis, alia nunc alia
posthac, sed et apud omnes gentes et omni tempore, una eademque lex
obtinebit (Swift v. Tyson, petersi) but in matters of detail each nation has
impressed its individuality on its own system the English la w has been
summarized above. Perhaps its special characteristics may be best brought out
by comparing it with the French code and noting some salient divergences.

English law has been developed gradually by judicial decision founded on

custom. French law was codified in the 17 th century by the ordinance de 1673
. The existing code de commerce amplifies, out substantially adopts the
provision of the ordinance the growth of French law was thus arrested at an
early period of its development. The result is instructive. 28

28
M.S.Parthasarathy, Cheque in Law and Practice, 1 (2003).

30 | P a g e
Common prototypes of bills of exchanges and promissory notes originated in
China. Here, in the 8th century during the reign of the Tang Dynasty they
used special instruments called feitsyan for the safe transfer of money, over
long distances. Later such document for money transfer used by Arab
merchants, who had used the prototypes of bills of exchange — suftadja and
hawala in 10 -13 th centuries, then such protoypes were used by Italian
th
merchants in the 12 century. In Italy in 13- 15 th centuries bill of exchange and
promissory note obtain ed their main features and further phases of
development have been associated with France (16 - 18 th centuries, where the
endorsement had appeared) and Germany (19 th century, formalization of
Exchange law). In England and later in the U.S. Exchange law was different
from continental Europe because of different legal systems. In the
commonwealth almost all Jurisdictions have codified the law relating to
negotiable instruments in a Bills of Exchange Act 1882 in the UK, Bills of
Exchange Act 1908 in New Zealand. The Negotiable Instrument Act 1881 in
India and the Bills of Exchange Act 1914 in Mauritius. The Bills of Exchange
Act Additionally most commonwealth Jurisdictions have separate cheques
Acts providing for additional protections for bankers collecting unendorsed or
irregularly endorsed cheques, providing that cheques that are crossed and
marked not negotiable‘ or similar are not transferable, and providing for
electronic presentation of cheques in inter- bank cheque clearing system. 29

Historical Development in Respect of a Cheque

2.4. 1 Origin of the word ‘Cheque’ in England

According to J.W.Gilbert the word Cheque is derived from the French ‗ Eches‘
meaning Chess. The Chequers placed at the doors of public houses were
intended to represent Chess - boards, and originally denoted that the game of
Chess was played in those houses. Similar tables were employed in reckoning
money, and hence came the expression ‗ to check an account‘; and the
Government office where the public accounts were kept, was called the

29
M.S.Parthasarathy, Cheque in Law and Practice, 1 (2003).
31 | P a g e
‗Exchequer ‘. There is also another explanation. It is said that the word
`Cheque‘ arose from the consecutive numbers which were placed upon the
official forms to act as a check or means of verification. 30

Similarly Dr. Bett says this word cheque is the same as ‗ check‘ and appears
to have been at first applied to the counterfoil which keeps a tally of the
amount. This spelling was kept up till comparatively late period down to and
th
including the 12 edition of Byles on Bills. It is interesting to note that Dr.
Bett is of opinion that cheque or exchequer are all words derived from the
game of chess and go back to the Persian word for a King and that the
principal piece has given its name to the game itself. In this way he says that
Cheques do not seem to have been introduced in England till the seventeenth
century; for, it is really then that the business of banking was undertaken by
goldsmiths in England, who borrowed the practice from Holland and from the
money- dealers of Florence who flourished as early as the thirteenth century.

2.4. 2. Origin of Banking

One view is that the London goldsmiths were the first bankers in England.
They received money from their customers on condition to pay its equivalent
when called upon to do so. When a customer wished to make payment to a
third party, it was customary to write an order addressed to his banker to pay
the sum required and these notes or orders were the earlier forms of cheque
currency. The cheque or―drawn note as it was called and which was used by the
customers of the goldsmith banker.

Before banking in modern sense of the word originated in England the

Goldsmiths exercised many of the functions of bankers and some of the oldest
existing private banks in England are the direct descendents of these
Goldsmiths. They received money on deposit from their customers subject to
the obligation to repay an equivalent sum, when called upon to do so. They
paid interests on deposits. They discounted bills of exchange and various types
of Treasury Exchequer money orders; they bought and sold bullion; they

30
Bhashyam and Adiga, The Negotiable Instruments Act, at 5 (2008).

32 | P a g e
circulated their own bank notes and they changed the coins of other countries
for English coins and so on. From about the middle of the seventeenth century,
the depositor would address to his goldsmith a short letter of request 31
authorizing the payment to his creditor of the sum due. They would take this
authorit y to the goldsmith‘s ―shop and there receive the sum in specie.
Before long, the merchant debtor drew his ―bil l or ―note in favour of his
creditor ―or order or in favour of him ―or bearer, and the goldsmith duly
honoured it upon presentation. The accounts of those merchants, which
nowadays would be called ―current accounts, were usuall y known as
―running cashes, and the y became popular. B y 1677 there were fift y- eight
goldsmiths in London, who kept ―running cashes, thirty- eight of whom
lived in Lombard Street. Furthermore, there is clear evidence that the
goldsmiths employed the funds left with them by making loans to others. Thus,
they made loans to Cromwell and also to merchants who were the goldsmiths
performed the basic functions of modern bankers by accepting sums at interest
by making loans and by providing their customers with facilities for making
payments to third parties.

The ancient Romans are believed to have used an early form of cheque known as
prescriptions in the first century BC. During the 3rd century AD, banks in Persia and other
territories in the Persian Empire under the Sassanid Empire issued letters of credit
known as sacks. Muslims are known to have used the cheque or sakks system
since the times of harunal Rashid ( 9th century). In the 9th century, a Muslim
business man could cash an early form of the cheque in china drawn on sources
in Baghdad, a tradition that was significantly strengthened in the 13 th and
14 th centuries, during the Mongol Empire. Indeed, fragments found in the
Cairo Geniza indicate that in the 12 th century cheques remarkably similar to
our own were in use, only smaller to save costs on the paper they contain a
sum to be paid and then the order ‗may so and so pay the bearer such and
such an amount‘. The date and name of the issuer are also apparent. 32

Between 1118 and 1307, it is believed the knights Templar introduced a cheque
system for pilgrims travelling to the holy land or across Europe. The pilgrims

31
M.S.Paarthasarathy, Cheques in Law and Practice, at 2 (2003).
32
M.S.Paarthasarathy, Cheques in Law and Practice, at 2 (2003).
33 | P a g e
would deposit funds at one chapter house, then withdraw it from another
chapter at their destination by showing a drafts of their claim. These drafts
would be written in a very complicated code only the templars could decipher.

The word ‗Cheque‘ or ‗ check‘ as it was spelt at first did not come into use
until the eighteenth century. The modern spelling of the word was adopted
about the middle of the nineteenth century. The 1827 edition of Joseph Chitty‘s
work on Bills of Exchange used the old spelling ‗check‘. The following year
J.W. Gilbert published his Practical Treatise on Banking‘. He used the
modern spelling ‗Cheque‘, and he explained that he had adopted that spelling
because it was free from ambiguity. 33

Further, the cheques are the daily companion of most bank men from the first
moment they timidly enter the bank‘s portals until the last evening when
they lay down their pens and retire leaving a glorious record of their
achievements to serve as a beacon light for the juniors who follow them.

Emergence of Law Relating to Negotiable Instruments in India

Although the high mountains ranges have separated India from the rest of
Asia, yet this separation did not prevent intercourse with the countries of
world. Similarly, the long sea coast of India facilitated the growth of maritime
trade and large numbers of harbor were established thorough which trade
33
relations with Rome, China, Malaysia etc. were set up. The well developed
financial system can be traced to Kautil ya‘s (Chanak ya) Arthsastra. It has
been described in it, ―All undertaking depend upon finance. Hence,
foremost attention shall be paid to the treasury.

Indigenous banking is an age old tradition in India. Although evidence

regarding the existence of money lending operations in India is found in the
35
literature of the Vedic times, i.e. 2000 to 1400 B.C., no information is
available regarding their pursuit, as a profession by a section of the
community, till 5000 B.C. From this time onwards, India possessed a system of

33
Ibid
34 | P a g e
banking, which admirably fulfilled her needs and proved very beneficial to
her, although i ts methods were different from those of modern Western
Banking. The literature of the Buddhist period supplies ample evidence of the
existence of Srethis, or bankers, in all the important trade centres and of
their widespread influence in the life of the community. Their chief activity
was to lend money to traders, to merchant- adventures who went to foreign
countries, to explorers who marched through forests to discover valuable
materials, and to kings who were in financial difficulties due to war or other
reasons, against the pledge of movable or immovable property or personal
surety. 34
In India, there is reason to believe that instrument of exchange were in use
from early times and we find that papers representing money were
introduced into the country by one of the Muhammadan sovereigns of Delhi in
the early part of the fourteenth century, the idea having been borrowed from China;
and it is the accepted theory of the western savants, that in China a complete system of
paper currency and banking had been developed as early as the tenth century and it is not
improbable that such an idea filtered into Indi a sometime later. 37

During the Mohgul rule the issuance of metallic money in different parts of
the country gave the indige nous bankers great opportunity for developing
very profitable business of money- changing. The most influential persons
were appointed mint officers, revenue collectors, bankers and money-
changers in various parts of the Empire. Many of them wielded extra- ordinary
influence in the country, and those among them who came to be known as Jagat
Seths ( world bankers) possessed as great a power as the private bankers of
any western country. The indigenous bankers, however, could not develop
to any extent the system of obtaining credits at regular intervals from the
public and paying interest on them and those who made savings either horded
the same, or lent them to friends and relatives. The reason which comes to
the fore front is that many of them combined trade with banking business;
this combination reduced the stability of their banking business, and produced
an unwanted reaction upon banking development in India. 35

34
Unique Quintessence of General Studies, at 5.1 (1994).

35
Kautilya’s Arthasastra, Book –II Chapter-8
35 | P a g e
 th
The English trader who came to India in 17 century could not make much use
of the indigenous bankers owing to their ignorance of the latter ‘s language
and owing to the latter ‘s inexperience of the finance of the former ‘s trade.
Therefore, although the East India Company established connections with
these bankers, borrowed funds from them, and for the first few years collected
a portion of the land revenue through them, the English agency houses in
Calcutta and Bombay began to 36 conduct banking business besides their
commercial business. From this time, the business and power of the indigenous
bankers began to wane, although the East India Company successfully
prevented the establishment in India of banking on Western lines for a
considerable time, on the ground that the agency houses and the indigenous
bankers were more suited to the banking requirements of the country. Other
causes also operated to bring about the decline of the indigenous bankers. The
continuous warfare and chaos that resulted from the breaking down the Mogul
Empire seriously checked their activities. Some of them at times unable to
fulfill their promises, had to resort to questionable practices, and found their
claims not infrequently evaded by their debtors, some of whom were ruling
princes. Further, they lost their profitable money changing business from
1835, when a uniform currency was established throughout the country.
Moreover, the diversion of trade from old to new routes and the change on
basis of India‘s trade relations with other countries, that were brought about by
the development of railways, steamships, post and telegraph, affected their
business adversely. Their decline and gradual expansion of English trade and
power in India led the East India Company to abandon its opposition to the
establishment of banks on Western lines in India. Consequently, such banks
and Government treasuries came to be established, and they accentuated the
decline of the indigenous bankers. 37

Upon the advent of British rule in India the business activities proliferated to a
great extent. Under the escalating trends of trade and commerce, an increasing

36
Macdonnell and Keith, Vedic Index of Names and Subjects, Vol. I (109).

37
Panandikal, Banking in India, at 1 (2005).

36 | P a g e
requirement was felt to substitute the ordinarily used currency with a mode
which could be easily converted into cash and could be passed on, negotiated
and exchanged repeatedly without any undue hassles or obstructions. The
growing demands for money could not be satisfied by simple exchange of coins
and the instruments of credit were used in place of money. The negotiable
instruments law as prevalent in England was applied by the judicial system in
India when any dispute relating to such instruments arose between Europeans.

It was also there that when the parties were Hindus and Mohammedans, their
personal laws were applied. Though neither the law books of Hindus nor
those of Mohammedans contain any reference to negotiable instruments or
any law dealing with the same as such, the customs prevailing among the
merchants of the respective community were recognized by the courts and
applied to the transactions among them.

It was the ever- growing inflation that accentuated the need of compact money
and inspired the practice of issuing cheques. However the credibility of a
cheque in its earlier days depended largely upon the credibility of the issuer,
which was a major impediment in its becoming a dependable mode of payment.
Being prone to frauds it attracted the attention of legislature, which realizing
the compelling urgent need of an alternative mode of financial transactions
sought to make cheques more credible with rules and laws backing it. 38

It is common knowledge that the London goldsmiths were the first bankers in
England and the system of payment of cash through cheques dates back to the
17th century in which commercial bankin g was initiated. Written orders
were addressed to the bankers by the customers who were known as ―Drawn
Notes‖. It use to be onl y an ordinary slip of paper containing written order
addressed to the banker by his customer to pay on demand the sum specified
therein. Generally, it was made payable to the payee only and sometimes to the
payee or order or bearer.

During the eighteenth century there was an increased use of cheque system
and the bankers started printing cheques to issue to their customers. Since then

38
Supra Note 26, at 6.
37 | P a g e
there is no substitution replacement of cheque system. The cheque is, in most
expensive way used in both developing and the developed economy. In Indian
context the cheques are officially issued. During present days due to growth
in internet and technological innovation the system of electronic cheques are
followed both in India and abroad though there is also prevailing the manual
method of cheque system in economy. However, at present, we find that the
cheque as well as the cheques in electronic forms have become popular in
international trade and are playing an important role in the monetary system of
all the countries. 39

the Object of Enactment of Sections 138 to 142 of Negotiable Instruments

Act

It is submitted that the legislature in its wisdom had contemplated to bring

section 138 in ink on the statute books in order to initiate financial
discipline in business transactions. Prior to insertion of section 138 of the
Negotiable Instruments Act, a dishonoured cheque left the aggrieved person
with the sole remedy of redressal of his legal rights by filing a suit for
recovery in the civil court. The object and rationale behind bringing new
provisions in the Act was to make the persons dealing in commercial
transactions work with a sense of responsibility and for that reason, under the
amended provisions of law, lapse on their part to honour their commitment
renders the persons liable for criminal prosecution.

The smooth working of the system of cheques and as matter of fact, of all
negotiable instruments, primarily depends upon the honesty and the integrity
of the parties thereto. But it was noticed, especially in commercial
transactions, that cheques were given merely as a device not only to stall
but even to defraud the creditor, the growing practice of either to play for
time or to play fast and loose became alarming and deserved the intervention of
the legislatures. It cannot be disputed that dishonour of a cheque by the bank
may cause incalculable loss, injury or inconvenience to the payee. When
dishonour of cheques was becoming the order of the day, the legislatures could
not sit idle as spectators more so when there was already a big clamour in the
mercantile community in this regard. If this undesirable element is allowed to

39
Ibid.

38 | P a g e
continue, it would erode the credibility of cheques as a trustworthy substitute
for cash payment. Of course, the civil remedy was open to the payee ( and he
can still go to the civil court) but a civil suit is generally a long drawn matter
and an unscrupulous drawer is able to take various pleas either to kill time or
to defeat the genuine claim of the payee. 40

It was also not easy to prosecute the drawer under section 417 or section 420 of
the Indian Penal Code in as much as dishonour of a cheque by the bank per se is
not an offence under the provisions of the Penal Code. So it was not easy to
bring home the guilt of the drawer/accused under section 417 or section 420
IPC. Against this backdrop the legislatures decided to provide a fairly
effective remedy where a cheque is returned unpaid by the bank for
insufficiency of money in the account upon which the cheque was drawn. At
the same time the legislatures were quite conscious that the honest drawer
should not be dragged to the Court. Accordingly, dishonour of cheques per se
has not been made an offence. Provision has been made to inform the drawer
by a demand notice about the dishonour of the cheque issued by him and
demanding payment of the cheque amount. Failure to make payment within
fifteen days of the receipt of the said notice has been made an offence
punishable under section 138 of the Act. The drawer then is precluded from
coming into the court with an excuse that he had no reason to believe when
he issued the cheque that it may be dishonoured on presentment.

For tracing the object and the ingredients under the provisions, in particular,
sections 138 and 139 of the Act cannot be ignored. Proper and smooth
functioning of all business transactions particularly, of cheques as
instruments, primarily depends upon the integrity and honesty of the parties.
In our country, in a large number of commercial transactions, it was noted
that the cheques were issued even merely as a device not only to stall but
even to defraud the creditors. The sanctity and credibility of issuance of
cheques in commercial transactions was eroded to a large extent. Undoubtedly,
dishonour of a cheque by the bank causes incalculable loss, injury and
inconvenience to the payee and the entire credibility of the business
transactions within and outside the country suffers a serious setback. The
Parliament, in order to restore the credibility of cheques as a trustworthy

40
Ibid
39 | P a g e
substitute for cash payment, enacted the aforesaid provisions. The remedy
available in civil court is a long drawn matter and an unscrupulous d rawer
normally takes various pleas to defeat the genuine claim of the payee.

The Banking Laws prior to the Amending Act 66 of 1988 were amended
through the Banking Laws ( Amendments) Act, 1985 ( Act No. 81 of 1985 ).
The various provisions of this Amending Ac t were brought into force on
different dates in between 1985 and 1986. Thereafter it was felt there is need
for amending various laws relating to banks and public financial institution 41
and that necessitates some more amendments in the Negotiable Instrument s
Act, 1881, the Banking Regulations Act, 1949, the Reserve Bank of India
Act, 1934, the State Bank of India Act, 1934 the State Bank of India
(Subsidiary Banks) Act, 1959, the Industrial Development Bank of India Act,
1954, the Deposit Insurance and Credit Guarantee Corporation Act, 1961, the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 ,
the Regional Rural Banks Act, 1976, the Export- Import Bank in India Act,
1981, the National Bank for Agriculture and Rural Development Act, 1981
and the Industrial Reconstruction Bank of India Act, 1984. As a sequel thereof,
the Negotiable Instruments Act, 1881 has been amended drastically by Act No.
55 of 2002. Some of the major amendments brought about w. e. f. 06.02.2003,
are as under:-

Electronic image of a truncated cheque and a cheque in the electronic form

have been introduced (Sections 6, 81, 89 and 131 );

Term of punishment has been increased from one year to two years (Section
138);

Period for issue of notice by the payee to the drawer has been increased from
15 days to 30 days (Section 138);

Discretion has been given to the court to waive the period of one month,
which has been prescribed for taking cognizance of the case under the Act (Section
142);

41
L.C.Jain, Indigenous Banking in India, at 20 (1929).

40 | P a g e
Procedure has been prescribed for dispensing with preliminary evidence of
the complainant and providing for raising of presumption as to dishonour of
cheque on mere production of bank's slip or memo (Sections 145 and 146);

Procedure has been prescribed for servicing of summons to the accused or

witness by the Court through speed post or empanelled private couriers
(Section 144); 42

Summary trial of the cases has been provided with a view to speeding up
disposal of cases (Section 143); 43

Offences under the Act have been made compoundable (Section 147 );

Those directors who are nominated as directors of a company by virtue of

their holding any office or employment in the Central Government or State
Government or a financial corporation owned or controlled by the Central
Government, or the State Government as the case may be, have been exempted
from prosecution under Chapter XVII ( Section 141 );

The Magistrates trying an offence under the Act have been given power to
pass sentence of imprisonment for a term exceeding one year and amount of
fine exceeding five thousand rupees (Section 143); The Information
Technology Act, 2000 has been made applicable to the Negotiable Instruments
Act, 1881 in relation to electronic cheques and truncated cheques subject to
such modifications and amendments as the Central Government, in
consultation with the Reserve Bank of India, considers necessary for carrying
out the purposes of the Act, by notification in the Official Gazette; and

Definitions of ―bank ers' books and ―certified cop y given in the Bankers'
Books Evidence Act, 1891, have been amended. 44

These amendments are aimed at early disposal of cases relating to dishonour

of cheques, enhancing punishment for offenders, introducing electronic image
of a truncated cheque and a cheque in the electronic form as well as exempting
an official nominee or director from prosecution under the Negotiable
Instruments Act, 1881.

42
L.C.Jain, Indigenous Banking in India, at 20 (1929).
43
S.N.Gupta, Dishonour of Cheques – Liability Civil & Criminal, at 2 (2006).
44
S.N.Gupta, Dishonour of Cheques – Liability Civil & Criminal, at 2 (2006).
41 | P a g e
 CHAPTER III
CHEQUE – DEFINITION, ESSENTIALS
AND DISHONOUR THEREOF

Definition of a Cheque
The Negotiable Instruments Act, 1881 defines the „Cheque‟ as under

A „ cheque‟ is a bill of exchange drawn on a specified Banker and not

expressed to be payable otherwise than on demand. The above provision has been
substituted by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act
2002, as under:

A „ cheque‟ is a bill of exchange drawn on a specified banker and not

expressed to be payable otherwise than on demand and it includes the
electronic image of a truncated cheque and a cheque in the electronic form.

A „bill of exchange‟ is an instrument in writing containing an unconditional order,

signed by the maker, directing a certain person to pay a certain sum of money only
to, or to the order of a certain person or to the bearer of the instrument. It will be
thus seen that cheque is a special kind of bill of exchange in the sense that it is

42 | P a g e
drawn in the name of a specified Banker. 45

Black‟s Law Dictionary defines cheque as a draft drawn upon a bank and
payable on demand signed by the maker or drawer, containing an unconditional
promise to pay a sum certain in money to the order of the payee.

Mitra‟s Legal and Commercial Dictionary defines cheque as a bill of

exchange drawn on a banker, payable on demand. A bearer cheque is one
expressed to be payable to a particular person or bearer, an order cheque is
one which is expressed to be so payable, or which is expressed to be payable to
a particular person or body and does not contain words prohibiting transfer or
indicating an Intention that it should not be transferable.

Venkataramaiya‟ s Law Lexicon Dictionary defines cheque as bill of

exchange drawn on a specified banker and not express ed to be payable
otherwise then on demand.

Jowitt‟s Dictionary of English Law defines cheque as –

“Cheque [Persian Shah- mat, the king is dead, chemate; hence check meaning
to stop, control, verify; check or cheque was applied to slips of paper of which
a piece was torn off to serve as a counterfoil or tally] A cheque is a bill of
Exchange (q. v.) drawn on a bank, payable. 46

Wharton‟s Law Lexicon defines it as –“Cheque- An order addressed to a banker

requesting him to pay to(a) the person therein mentioned, or his order, or (b)
the person therein mentioned, or the bearer of the cheque, the sum of money
therein mentioned; defined in the Bill of Exchange Act, 1882 , Sec. 73 by
which such provisions of that Act as are applicable to a bill of exchange
payable on demand apply also to a cheque as a bill of exchange drawn on a
banker payable on demand.

The New Encyclopedia Britannica Micropaedia Ready Reference –Ceara

Deluc defines it as-

45
Edn. 1977, by John Burke, at 330.
46
Edn. 1977, by John Burke, at 330.
43 | P a g e
Cheque, also spelled CHEQUE, bill of exchange drawn on a bank and payable
on demand; it has become the chief form of money in the domestic commerce
of developed countries. As a written order to pay money, it may be transferred
from one person to another by endorsement and delivery or in certain cases,
by delivery alone. Negotiability can be qualified by appropriate words, as
with restrictive endorsements, or by the check form itself.

New Standard Encyclopedia defines cheque as a written order to a bank to pay

money. It is a convenient and safe means of transferring money, and provides a
permanent record and receipt for each transaction. Any person or firm having
money on deposit in a checking account in a bank may write a check on that
bank. In some cases, money may be transferred from one checking account
to another without writing a check; the transactions accomplished by
computer.

Thomson‟s Dictionary of Banking , defines Cheque as – CHEQUE ( Formerly

written “check”). The word is derived from the French „Eches‟,
Chess. The Chequers placed at the doors of public houses are intended to
represent Chessboards and originally denoted that the game of Chess was
played in those houses. Similar tables were employed in reckoning money, and
hence came the expression “to check an account”; and the Government
office where the public accounts were kept was called the “Exchequer”.
Another explanation is that the word `Cheque‟ arose from the consecutive
numbers, which were placed upon the forms to act as a check or means of
verification. In the United States the word “check” is used at the present day.
Cheques first came into use about 1780 .. 47

A cheque differs from a bill in multiple ways: it does not require acceptance; it
is drawn upon a specified banker; the banker may be protected if it pays a
cheque bearing a forged endorsement; the drawer is the person liable to pay it
and the drawer, as a rule, is not discharged of his liability by delay in
presentation for payment. The intention behind issuance of a cheque is that it
be paid at an early date.

47
14th Edn. 3rd Indian Reprint 1996, at 186.

44 | P a g e
Method of Drawing a Cheque

To open a banking account, a person deposits a minimum prescribed sum of

money in a bank. The bank issues him a cheque -book with blank cheque
forms, and provides him with a means of maintaining a record of the cheques
he writes and the amount of money he still has on deposit. The bank gives him
a receipt for each new deposit and sends him a statement periodically
showing a complete record of all transactions. All honoured cheques (checks
that have been cashed by the bank) are returned with the statement, providing
the depositor with proof that payment was received. The bank usually levies a
small service charge on every account, and perhaps also a charge for each
cheque written.

To make out a cheque, the depositor scribes the date, the name of the payee (the
person or fi rm who is to receive the money) and the amount. He then signs his
name on the cheque. Before encasings the cheque the payee must endorse it by
signing his name on the back. He then either deposits it in a bank or exchanges
it for cash by giving the cheque to a bank, currency exchange, business firm,
financial institution, broker or individual. The new owner can endorse the
cheque to someone else or can deposit it in a bank for being encashed. When a
cheque reaches a bank, it is forwarded through a clearing- house back to the
bank on which it was drawn. After making sure the depositor‟s signature is
genuine, this bank in turn pays the presenting bank through the clearing- house.48

Money on current account is just like any other debt, it is repayable on

demand; if a customer comes and asks for his money, he is entitled to have
it without the formality of drawing a cheque. In such a case, however, the
customer would have to give a receipt. But the regular and ordinary method of
withdrawing money from a current account is by means of a cheque. A
depositor may withdraw money from his deposit account by signing a form of
receipt.

Indelible pencils are not much desirable articles for drawing cheques. A
cheque written in ordinary pencil should not ordinarily be paid without
48
S.N.Gupta, Dishonour of Cheque, Liability Civil and Criminal, at 15 (2002).
45 | P a g e
personal reference to the drawer, as the banker cannot possibly tell whether or
not it has been altered or forged. It is much desired that all cheques should be
written in ink. Typewritten cheques are too easily altered, and their use is
discouraged as far as possible. A cheque written upon a plain sheet of paper,
provided it is in proper form, is sufficient. Cheques of such description
should, however, never be drawn except in cases of extreme necessity or
urgency.

A customer‟s cheque must be unambiguous and must be ex facie in such a

condition as not to arouse any reasonable suspicion. But it follows from that i t
is the duty of the customer, should his own business or other requirements
prevent him from personally presenting it, to take care to frame and fill up his
cheque in such a manner that when it passes out of his (the customer‟ s) hands
it will not be so left that before presentation, alterations, interpolations, etc.,
can be readily made upon it without giving reasonable ground for suspicion to
the banker that they did not form part of the original body of the cheque when
signed. To neglect this duty of carefulness is a negligence cognisable by law.
The consequences of such negligence fall alone upon the party guilty of it –
namely, the customer. 49

Essentials of a Cheque

Cheque is by far one of the important negotiable instruments. It is frequently

used by the people and business community in the course of their personal
and business transactions. The essential requisites of cheque are as under :

 Must be in Writing –

The cheque may be scribed by hand by using ink or ballpoint pen, typed or it
may even be printed. However the customer should not make use of pencil to
fill up the cheque form. Even though other columns may be permitted to be
filled up in hand or printed or typed, the signatures should be made in ink by
the drawer.

 Must be Unconditional –

The order to pay the amount must be absolute and unconditional. If any
49
John Paget in the Gilbert Lectures 1916 (No.1), quoted in Canadian Banking Practice, 1921.
Lord Shaw, London Joint Stock Bank Ltd. v. Macmillan and Arthur, [1918] A.C.777
46 | P a g e
condition is imposed to pay the amount to the holder of the cheque then i t
will not be considered to be a valid cheque. A cheque made payable on the
happening of some contingent event is void ab-initio.

Must be Drawn on a Specified Banker –

For a cheque to be validly recognized under law it must be drawn on a

specified banker. If there is no mention in the cheque about the banker it
would not be a valid cheque. In addition to it, it must contain mention all the
three parties i. e. Drawer, Drawee and Payee.

Certain Sum of Money –

It is one of the essential requirements of the cheque that it must be payable in

terms of money and money only. If not in terms of money but some other
quantifiable units then it will not be a valid one. Also the sum mentioned in
it must be certain and quantified exactly.

1. Certain Payee –

The parties of the Cheque must be certain and not vague like “wife of Mr.
Ashok”. There are three parties of the cheque i. e. Drawer, Drawer and Payee.
In a valid Cheque the names of all three must be certain and specific. It must
contain an order, which must be unconditional.

 Date –
A cheque must be signed by the drawer with date otherwise it would not be a
valid cheque. The date on which the cheque is drawn must be specific
because as per the guidelines of Reserve Bank of India, cheque is valid for
presentment only within three months from the date on which it is drawn.

1 Aspect of Negotiability

In accordance with Section 5 and 6 of the Indian Negotiable Instruments Act,

1881, cheques are regarded as negotiable. A stud y of the cheque, thus,
requires a study of the negotiable instrument. An instrument, to be negotiable
must conform to the following requirements: 50

50
Duhaime‟s Law Dictionary, www.duhaime.org/Legal Dictionary, accessed on December 01, 2017.
47 | P a g e
 (i) It must be in writing and signed by the maker or drawer;
(ii) It must contain an unconditional promise or order to pay
certain sum in money;
(iii) It must be payable on demand; or at a fixed or determinable
future time;
(iv) It must be payable to order or to bearer; and
(v) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable
certainty.

Negotiable instrument is one the property in which is acquired by anyone

who takes it bonafide and for value, notwithstanding any defect of title in the
person from whom he took it, from which is follows that an instrument
cannot be negotia ble unless it is such and in such a state that the true owner
could transfer the contract or engagement contained therein by simple
delivery of the instrument.

2.Test of Negotiability

In order to ascertain the negotiability, whether it exists or not, certain tests

can be applied. Negotiability means that a cheque is transferable. It may,
therefore, be laid down as a safe rule that where an instrument is by the
custom of trade transferable like cash by delivery, and is also capable of
being sued upo n by the person holding it protempore, then it is entitled to
the name of a „ negotiable instrument‟, and the property in it passes to a
bona-fide transferee for value, though the transfer may not have taken place
in „market overt‟. But that if either of the above requisites be wanting, i.e. if
it be either not accustom ably transferable, or though it be accustom ably
transferable, yet, if its nature be such as to render it incapable of being in
suit by the party holding it pretempore , it is not a negotiable instrument, not
will delivery of it pass the property in it to a vendee, however, bona-fide if the
transferor himself have not a good title to it and the transfer be made out of
market overt. 51

When the holder of a negotiable instrument who is entitled to receive its

51
Duhaime‟s Law Dictionary, www.duhaime.org/Legal Dictionary, accessed on December 01, 2017.

48 | P a g e
payment, transfers the same to another person so that the transferee now
becomes entitled to receive the payment thereof, the instrument is said to
have been negotiated. When a promissory note, bill of exchange or a
cheque is endorsed to any person, so as to constitute that person the holder
thereof, the instrument is said to be negotiated. In other words negotiation
means in simple words, a transfer of negotiable instrument from one
person to another in accordance with the provisions of the Negotiable
Instrument Act, so that the rights in an instrument are transferred from one
person to another.

It is necessary that the transfer of the instrument must have been effected
with an intention to transfer the rights . If that intention does not exist, the
rights would not be transferred. In the case of a bearer instrument, the
rights can be transferred by mere delivery. If such a delivery is made with an
intention to transfer the rights the transferee would be entitled to receive the
payment of the same. On the other hand, if that intention is grossly missing,
such a right will not vest in the transferee.

3.How Is Negotiable Instrument Negotiated?

A negotiable instrument may be negotiated in two ways: ( i) if the instrument is

a bearer instrument, the rights in it can be transferred by mere delivery from
one person to another. It is however, necessary that the delivery of the
negotiable instrument must be made with an intention to transfer ownership,
i .e. constitute the transferee as the holder of the instrument, as required by
section 14 (ii) If the instrument is an order one the rights in it can be
transferred by endorsement and delivery.

As noted above an order instrument can be negotiated by endorsement of the

same and then delivery thereof. The rights in the instrument are not transferred
to the endorsee unless after making the endorsement the same has been
delivered. If a person makes the endorsement of an instrument but before the
same could be delivered to the endorsee the endorser expires, the legal
representatives of the deceased person cannot negotiate the same by mere
delivery thereof on account of the reason that the legal representative is not
the agent of the deceased. He cannot complete the process of negotiation left

49 | P a g e
incomplete by the deceased. 52

4.Vital Characteristics of Cheque

In the above perspective, the most essential feature of a cheque is that it can
be transferred. The transfer can be effected either by way of mere delivery or
by an endorsement coupled with delivery.

Whenever, the procedure mentioned above is adopted, the ownership of the

property bestowed in the instrument is transferred and further no other
document is required to be executed for this purpose. On the other hand the
other documents like shares and debentures are not negotiable, as the property
in such documents is not transferred only by means of delivery.

The second vital characteristic of a cheque is that a holder in the course gets a
valid title to it despite of any defect or shortcoming in the transferor‟ s
title. Such a bona -fide transferee for value gets a comprehensive, independent
and indefeasible title to the instrument and such person is known as the
„holder in due course‟ and he gets a title against the whole world i.e. ad-rem.
In case this characteristic is missing then the whole machinery of trade would
be disturbed as nobody would then accept a cheque if the transferee was made
liable to make fishing enquiries about the titles of the transferor.

In law there exists a general rule nemo dat quod non-habet which means that
no one can give what he does not have. However, so far as the Negotiable
Instruments are concerned, they are an exception to this Rule. It has been very
well pointed by Wills J. that the general rule of law is undoubtedly that no
one can transfer a better title than he himself possesses: nemo dat quod non
habet . To this there are some exceptions, one of which arises out of the rule of
the law as much as to negotiable instruments. These being part of the currency,
are subject to the same rule as money, and if such an instrument be
transferred in good faith for value before it is overdue, it becomes available
in the hands of the holder, notwithstanding fraud which would have rendered
it unavailable in the hands of a previous holder. This rule, however, is only
intended to favour transfers in the ordinary and usual manner, whereby a title
is acquired according to the law merchant, and not a transfer which is valid (

52
Section 14 says when a promissory note, bill of exchange or cheque is transferred to any person, so as to
constitute the person the holder thereof, the instrument is said to be negotiated.
50 | P a g e
only) in equity according to the doctrine respecting the assignment of chose-
in-action; and it is therefore clear that in order to acquire the benefit of this
rule the holder must, if it be payable to order, obtain an endorsement, and that
he is affected by notice of a fraud received before he does so. Until he does
so he is merely in the position of the assignee of an ordinary chose - in-
action, and has no better title than his assignor. 53

There is, thus, a difference between the transfer of a negotiable instrument and
that of ordinary goods and chattels. The general rule of law is that, where a
person has obtained the property of another from one who is dealing with it
without the authority of the owner, no title is acquired as against that owner,
even though full value be given, and the property be taken in the belief t hat
an unquestionable title thereto is being obtained, unless the person taking it
can show that the true owner has so acted as to mislead him into the belief that
the person dealing with the property has authority to do so. If this can be
shown a good title is acquired by personal estoppels against the true owner.
There is an exception to the general rule, however, in the case of negotiable
instruments any person in possession of these may convey a good title to them
even when he is acting in fraud of the true owner, and although such owner
has done nothing tending to mislead the person taking them.

This characteristic of a cheque is in complete variance to the legal position

relating to transfer of a chose -in- action, i .e. the property which a person has
not got in his actual possession but which he has a right to demand by a legal
action and which he can assign to another. According to Section 130 of the
Transfer of Property Act, 1882 such transfer is complete only after the
execution of an instrument. It is necessary that a notice of assignment be given
to the debtor or to the person against whom such a right is claimed. 54 In the
case of a negotiable instrument no prior notice of transfer is required and it is
naturally presumed that the negotiable instrument is always supported by
consideration. This characteristic of a cheque also yields another difference
that a holder in due course is protected against any claim whereas an assignee,
though he may part with full value and act in good faith, takes the
actionable claim subject to all the liability.
53
Ibid
54
Whistler v. Forster, (1863) 14 CB (NS) 248.
Lord Herschel, in London Joint Stock Bank v. Simmons, (1892) AC 201
51 | P a g e
The last essential feature of a cheque on account of it being a negotiable
instrument is that it has an inherent mechanism built in itself and it has a
right of action infused within the same. The holder of a cheque has therefore,
a right to sue thereon in his own name and he is not dependent upon title of
any other person. Whenever a bona -fide holder for value without notice or, in
short a holder in due course sues on the basis of an instrument, i t is for the
defendant to prove that the plaintiff is not entitled on the cheque on which the
case is being instituted. It cannot be lost sight of that a cheque, which is
negotiable, can be made not negotiable if the negotiation is prohibited. In case
a cheque is crossed “not negotiable” or made payable only to the payee named
therein “and not to his order or to bearer” such cheque is not negotiable.

Cheque marked with the words “pay cash or order” does not come within
the meaning of the Act and is not a negotiable inst rument. There is no
provision in the Act that the drawee is as such liable on the instrument, the
only exception being under section 31 in the case of a drawee of a cheque
having sufficient funds of the customer in his hands and even then the
liability is only towards the drawer and not the payee. Where there is no
acceptance no cause of action can be said to have arisen to the payee against
the drawee.

Difference Between a Cheque and a Bill of Exchange

A cheque is no doubt essentially a bill of exchange, but it has certain

peculiarities, which distinguish it from a bill of exchange. Some of the
peculiarities were clearly stated in Ram Churun Mullick v. Luckmee Chand. A
cheque is a peculiar sort of instrument, in many respects resembling a bill of
exchange, but in some entirely different. A cheque does not require
acceptance, in the ordinary course i t is never accepted; it is not intended for
circulation, it is given for immediate payment; it is not entitled to days of
grace. A cheque has always to be made payable on demand, whereas an
ordinary bill of exchange can be made payable after a fixed period. A future -
dated cheque, being not payable on demand, may not be regarded as a cheque
in the real sense of the word unless that date arrives and it becomes payable
on demand. 55

55
See Section 132 of the Transfer of Property Act, 1882.
52 | P a g e
A cheque is exempted from stamp- duty, but a promissory note as well as a bill
of exchange attracts stamp duty under the Indian Stamp Act, 1899 . There are
many differences between cheque and a bill of exchange. Some of them are as
…
under

 The acceptance of drawee is not mandatorily required for payment of

cheques, whereas the bill of exchange requires the acceptance of drawee
before it is made liable for payment;

 A banker is the only drawee in case of payment by cheque , while any

person including a banker can be the drawee of a bill of exchange;

 A cheque is payable immediately when the demand is made and without

affording any days of grace but in a bill of exchange, the grace period of
three days is given for its payment;

 In case of bill of exchange, if it is not duly presented for payment or

otherwise, the drawer is discharged, whereas in case of cheque, the drawer
is discharged if the holder of cheque causes delay in taking payment or
presenting it to banker for payment after the expiry of period prescribed
by the banker from the date of its issue;

 When a bill of exchange is dishonoured, due to non-payment, a notice to

that effect should necessarily be given to all concerning parties, whereas it
is not necessary in case of dishonour of a cheque. In case of dishonour of a
cheque, notice is to be given only to the drawer thereof and none other;

 A cheque has always to be made payable on demand whereas an ordinary

bill of exchange can be made payable after a fixed period. A future dated
cheque being not payable on demand may not be regarded as a cheque in the
real sense of the word unless the date arrives and it becomes payable on
demand.

3.Difference Between Draft and a Cheque

A draft is as much a bill of exchange as a cheque and there is hardly any

difference between a dishonoured draft and a dishonoured cheque, which is

Supra Note 12, at 62.

53 | P a g e
issued by a bank on itself. The difference between the two consists basically in
two aspects : -

 A draft can be drawn only by a bank on another bank and not by a private
person as in the case of a cheque and

 A draft cannot be so easily counter -manded as a cheque either by the person

purchasing it or by the bank to which it is presented. 56

 If a person requires money to be remitted from one place to another

through a bank by way of a draft, it will be the relationship of not merely
creditor and debtor as between the customer and the bank but also a
relationship of cestui que trust and trustee. If the purchaser of the draft
cancels it before i t is delivered to the drawee and retains it in his own hands
we can treat the bank which issued the draft as his debtor and when a
creditor demands the amount from the bank , the bank would, thereby, be l
iable to satisfy the demand.

4.Holder and Holder in Due Course

Every instrument initially belongs to the payee and he is entitled to its

possession. The payee can transfer it to any person in payment of his own debt.
This transfer is known as „negotiation‟. Negotiation takes place in two ways.
A bearer instrument passes by simple delivery and the person to whom it is
delivered becomes the holder. An order instrument, on the other hand, can be
negotiated only by endorsement and delivery and the endorsee becomes the
holder. Hence the holder means either the bearer or endorsee of an instrument.
Accordingly Section 2 of the English Bills of Exchange Act, 1882, provides
that “holder means the payee or endorsee of a bill or note who is in
possession of it or the bearer thereof”. The definition contained in Section 8 is
to the same effect, although expressed in different words. It says that holder
means any person entitled in his own name to the possession of an instrument
and to receive and recover the amount. Now, no one can be entitled to the
possession of a bill or note unless he becomes either the bearer or endorsee
thereof.

56
Jagjevan Mavji v. Ranchhodas Meghji, AIR 1954 SC 544. (1854) 9 Moore PC 64.

54 | P a g e
1 Holder Entitled In His Own Name

The holder must be entitled in his own name to the possession of the
instrument. A person may be entitled to possession of the instrument
although he does not have actual possession. The definition seems to suggest
that the term holder means only a dejure holder and does not necessarily
apply to a de facto holder. A person may be operation of law become the
holder of a negotiable Instrument although he is not the bearer, payee or
indorsee there of, the heir or legal representative of a deceased payee can
claim as the holder. 57

The word „ Holder‟ has been defined in Section of the 8 of the Negotiable Instruments
Act as well as in Section 2 of English Bill s of Exchange Act, 1882 as
mentioned above. Reading these definitions conjunctively with section 78 of
the Negotiable Instruments Act, holder means that a person to whom the
payment should be made in order to discharge the maker or acceptor from all
liabilities under the instrument is the holder of the instrument or he is
accredited agent such as banker, acting as an agent for collection. A person
who cannot claim and does not have right to recover the amount due on the
instrument, is not the holder. Thus, a person who can sue in his name is a
holder. He may be the payee or one who becomes entitled to it as endorsee or
becomes the bearer of an instrument payable to the bearer. The most vital
words in the section are „entitled in his own name‟. Thus, the term „holder
does not include a person who, though in possession of the instrument, has no
right to recover the amount due thereon from the parties thereto. However, the
assignee of such person is entitled to sue in his own name.

A holder must have the right to receiver or recover the amount due on the
instrument from the parties there to. To qualify as a holder, a person should
have derived title to the instrument in a lawful manner. A plaintiff who is a
benamidar or a trustee or guardian and has taken the instrument in his on
name, is entitled to sue upon it. The beneficial owner of an instrument cannot
bring a suit on it, if he is not the holder 58.

2.Assignment of Negotiable Instruments

57
Supra Note 12, at 62.
58
under Section 130 of the Transfer of Property Act 1882
55 | P a g e
Negotiable instruments can be assigned under Section 130 of the Transfer of
Property Act 1882. The assignee of a promissory note can, sue the maker for
recovering the amount due on the note by virtue of his right under that Act.
The assignee, however, takes the instrument, subject to the liabilities and
equities to which the assignor was subject to at the time of the assignment.
An assignment of a promissory note at a partition to a member of a joint
family does not amount to a transfer by act of parties but by operation of
law, no document in support of the assignment is, therefore required under
section 130 of the Transfer of Property Act 1882. Where the note, bill or
cheque is lost or destroyed, its holder is the person so entitled at the time of
such loss or destruction.

3.Holder in Due Course

The Negotiable Instruments Act, 1881 defines „Holder in Due Course‟ as any
person who for consideration became the possessor of the a promissory note,
bill of exchange or cheque if payable to bearer, or the payee of endorsee
thereof, if payable to order, before the amount mentioned in it became payable,
and without having sufficient cause to believe that any defect existed in the
title of the person from whom he derived his title show:

 that he is the holder of the negotiable instrument,

 he has obtained it for consideration,

 he has obtained it before the maturity of the negotiable instrument, and

 that he has obtained the negotiable instrument in good faith.

 Until contrary is proved the holder of a negotiable instrument is presumed to be a

holder in due course.

In India it has been seen above the payee can also be a holder in due course
but in England the payee of a negotiable instrument can not be holder in due
course as was decided by the house of Lords in Jones v. Waring and Gillow
If a person gets an instrument under a forged endorsement, he cannot be called
a holder in due course. A transferee under a forged endorsement gets no title to
the instrument and if such a transferee has been able to get the amount of the
instrument, he is bound to account for the same to the owner of the

56 | P a g e
instrument. 59

Section 9 requires that to be a holder in due course a person must take the
negotiable instrument before the amount due thereon became payable. Section
59 of the Negotiable Instruments Act also provides that a person taking a
negotiable instrument after its maturity has the rights thereon of a transferor.
It necessarily envisages that a person taking an instrument after maturity will
not be a holder in due course and thus will not be capable of having a better
title than that of the transferor.

2.Instrument Must be Obtained for Consideration

A holder in due course must have obtained the instrument for consideration.
The consideration must also be valid and lawful. If a person takes a negotiable
instrument without consideration or where the consideration is unlawful he
cannot be called a holder in due course. Holder in due course must take t he
negotiable instrument without having sufficient cause to believe that any
defect exists or existed in the title of the person from whom he delivers his
title. The condition requires that he should have acted in good faith and with
reasonable caution.

A conjunctive reading of sections 8,9,14 and 15 shows that a promissory note,

bill of exchange or a cheque can be negotiated or transferred by making an
endorsement either on the instrument or on a separate paper annexed thereto.
The transferee of such instrument becomes the holder if that person is entitled
in his own name to the possession thereof when it is transferred in his favour
by making the necessary endorsement. The holder of a cheque becomes holder
in due course only when he has become the possess or thereof for
consideration without knowing that any defect existed in the t itle of the
person from whom he derived the title. No one can sue on a negotiable
instrument as a holder unless he is named therein as the payee or unless he
becomes entitled to i t as endorsee or bearer.

3.Identity of the Drawer Need Not be Proved

In the case of Mathew George v. Jacob the Kerala High Court held that
complainant need not prove identity of accused . A reading of section 138
would clearly indicate that as and when cheque signed in discharge of a legally

59
Jones v. Waring and Gillow
57 | P a g e
enforceable debt is dishonoured, the offence under section 138 of the Act
comes into existence. Further, as per section 139 of the act, there is a
presumption in favour of the holder of the cheque. It is the burden of the
complainant to prove that the cheque was signed by the drawer in discharge of
a legally enforceable debt. If such burden is proved, the presumption under
section 139 of the Act comes into force in favour of the complainant. In such
circumsta 60nces, the identity of the signatory of a negotiable instrument does
not arise. Further, as per section 9 of the Act, a complaint can be filed by a
person who is holder in due course of a negotiable instrument like the cheque.

When a private complaint is filed before the court, the court is expected to
make an enquiry under section 202, Cr.P.C. only with regard to the offence
alleged and not with regard to the identity of the accused who committed the
offence. In the above circumstances, identity of the signatory of a cheque is
not a question to b e considered by the Trial Court.

4.Endorsement

When the maker or holder of a negotiable instruments signs the same otherwise
than as maker, for the purpose of negotiating the same, on the back or face
thereof, or on a slip of paper annexed there to or so signs for the same purpose
a stamped paper intended to be completed as negotiable instrument, he is
said to endorse the same, and is thereby called the “endorser.” The
endorsement therefore means signatures o f the person which are generally
made at the back of the instrument, for the purpose of transfer of rights
consisted therein to another person. An endorsement is completed by the
delivery of the instrument to the endorsee. Thus where a person endorses an
instrument to another and keeps it in his papers where it is found after his
death and delivered to the endorsee, the latter gets no right on the instrument.

1.Types of Endorsements

Endorsement in Blank

If the endorser signs his name only, the endorsement is said to be “in
blank”, and if he adds a direction to pay the amount mentioned in the

60
Kuruvilla v. Varkey, ILR (1969) 2 Ker 630.
Dr. Avtar Singh, Negotiable Instruments, at 28 (2016).

58 | P a g e
instrument to, or the order of, a specified person, the endorsement is said to
be “in full “and the person so specified is called the “endorsee” of the
instrument. Where the endorser signs only his name on the back of the
instrument for the purpose of negotiating it that is an endorsement “in
blank”. The effect of a blank endorsement is to convert the order instrument
into bearer. For all purposes of negotiation it becomes a bearer instrument. It
may be negotiated by simple delivery and the bearer is entitled to its
payment. 61

It remains so until the endorsement in blank is converted by the holder into

endorsement in full a subsequent endorsement in full will not have the effect
of converting the instrument into “order”. All subsequent endorsements will
be needless and forgery of a redundant endorsement will not affect the title of
any subsequent party. Where a cheque is originally payable to bearer, any
endorsement in blank or in full or of restrictive nature will not destroy its
bearer character and the banker will be discharged from his liability by
payment to the bearer. A bearer instrument means one which is expressed to
be payable to bearer or on which the only or the last endorsement is in blank.
Where an endorsement in blank is subsequently followed by an endorsement in
full, the endorser in full will be liable to his immediate endorsee and parties
deriving title from him but not to others. When an endorsemen t in blank is
followed by an endorsement in full, it is called conversion of endorsement
in blank into endorsement in full.

An instrument which is endorsed in blank becomes payable to bearer and

transferable by simple delivery. No further endorsement is necessary. If any
such endorsement in blank or in full is inserted, it remains redundant and
inoperative and has no effect. When the payee of a bill of exchange has
made an endorsement in blank, no subsequent endorsee can restrain its
negotiability by a special endorsement. The endorser could have transferred
the instrument by delivery and, therefore, his liability is reckoned as that of a
transferor by delivery. Endorsement makes the endorser liable to the person to
whom he endorsed the instrument in full and also to such other persons who

61
Mohanlal Jagami Rice Atta Mills v. Ramlal Omkarmal Firm, AIR 1957 Assam 133.

59 | P a g e
derive title from such endorsee in full , subsequently. 62

Endorsement in Full

If the endorser puts his signatures by adding a direction to pay the amount
mentioned in the instrument to, or the order of, a specified person, the
endorsement is said to be “in full” and the person so specified in the
endorsement is called the “endorsee” of the instrument. The usual form of
course, is to add the words “or order” after the name of the endorsee, but as
no form is prescribed, any words will do so long as they clearly by show the
endorser‟s intention. Where neutral words like “made over” or “assign” are
used, the intention of the parties would have to be looked into to see
whether endorsement or assignment was intended. If the words used are
equivalent to a direction to pay, it would amount to an endorsement within the
meaning of section 16.

A person procured a loan for his two sons and, having received a bill of exchange duly
accepted by them for the amount, he signed his own name across the back
and forwarded it to the lender. The sons became bankrupt and the father and
the lender having died, there was no exact evidence why the father put his
name of the bill. His representatives were held to be not liable, for he was not
an acceptor. The court said that the character in which the father did become a
56
party to the bill was both in fact and law that of an endorsement. The
effect of an endorsement in full is that the instrument can be paid only to the
endorsee and can be further negotiated only by his endorsement. The
instrument retains its order character.

The holder of an instrument endorsed in blank may, by adding the name of a

person before the endorser‟s signature, convert the endorsement into full.
The holder does not thereby i ncur any liability as an endorser. This right is
given to the holder by the provision in section 49. The holder does not
himself sign, but only adds the name of a person before an endorsement in
blank. The holder may then transfer the instrument to the person whose name
he so specified but will not incur the liability of an endorser. 63

Effect of Endorsement and Restrictive Endorsement

62
Dr. Avtar Singh, Negotiable Instruments, at 39 (2016).
63
Dr. Avtar Singh, Negotiable Instruments, at 39 (2016).
60 | P a g e
The endorsement of a negotiable instrument followed by delivery transfers to
the endorsee the property therein with right of further negotiation; but the
endorsement may, by express words, restrict or include such right, or may
merely constitute the endorsee an agent to endorse the instrument or to receive
its contents for the endorser, or for some other specified person. One of the
effects of an endorsement which has been completed by delivery is that the
property in the instrument passes to the endorsee and he gets the right of
further endorsement. But when this right of further negotiation is, by express
words in the endorsement restricted or taken, away, that is called “restrictive”
endorsement.

The endorser may altogether exclude the right of further negotiation or only
restrict it or may merely constitute the endorsee an agent to endorse the
instrument, or to receive it s contents for the endorser or for some other
specified person. The effect of a restrictive endorsement is that the endorsee
gets the right to receive the payment when due and sue the parties for it, but he
cannot further negotiate the instrument except as authorized by the endorser.
The endorsee is constituted merely as an agent for collection and the endorser
remains the real owner of the instrument. An endorsement for collection
does not as between the endorser and endorsee, pass the property in the bill
to the endorsee, though it puts him in a position to make a title for a subsequent
holder in due course.

A restrictive endorsement has to be distinguished from conditional delivery.

Where the endorsement is without any restriction, but while delivering the
instrument to the endorsee an agreement is obtained from him that he will not
cash or transfer it unless a condition is fulfilled, there, if the endorsee
transfers further without fulfilling the condition, the transferee may get a
good right if he acts in good faith. In the case of a restrictive endorsement,
the restriction upon transfer being apparent upon the endorsement, any
further transferee will take the instrument subject to the restriction.
i. Endorsement Sans Recourse

The endorser of a negotiable instrument may, by express words in the

endorsement, exclude his own liability there on or make such liability or the
right of the endorsee to receive the amount due there on depend upon the

61 | P a g e
happening of a specified event, although such event may never happen.
Where an endorser so excludes his liability and after words become the
holder of the instrument, all intermediate endorsers are liable to him.

If the endorser does not want to incur any liability as endorser, he can insert
a stipulation in his endorsement negative or limiting his liability. A person
who was not a party to a cheque, at the request of the payee wrote his name
on the back thereof, adding the words “sans recourse” it was held that an
endorser has a right to negate his liability by suitable words. When an
endorser of this kind becomes the holder of the instrument in his own right,
all intermediate endorsers are liable to him. 64
a) Conditional Endorsemen

The endorser can also insert some sort of a condition in his endorsement. He
may, say that “Pay X or order on his marriage” or on the arrival of a ship”. A
condition of this kind does not affect the position of the party who has to pay
the instrument on its maturity. He may pay to the endorsee and will be
discharged from liability whether the condition has been fulfilled or not. But
as between the endorser and endorsee the condition is operative. If the
endorsee obtains the payment without the condition being fulfilled he will
hold the same in trust for the endorser.A conditional endorsement can be
distinguished from a conditional delivery. In conditional delivery no
mention of the condition is made in the endorsement or any where else on
the instrument. The condition is separately stipulated upon.

Partial Endorsement

No writing on a negotiable instrument is valid for the purpose of negotiation if

such writing purports to transfer only a part of the amount appearing to be
due on the instrument; but where such amount has been partly paid, a note to
that effect may be endorsed on the instrument, which may then be negotiated
for the balance.

An instrument cannot be endorsed for a part of its amount only. If the

instrument is for Rs 100 it can not be endorsed for Rs 50 only. But if the
amount due has already been partly paid, a note to that e ffect may be endorsed
on the instrument and it may then be negotiated for the balance where an

64
Ibid
62 | P a g e
instrument has been partly paid but the fact of part payment is not entered
on it, and, if it is endorsed to a bona fide holder, it will be an instrument of full
value in his hand. 65

The transfer of an instrument to two different persons will mean part transfer
in favour of one and part in favour of the other. It will also be in operative
under section 56. Such persons, how ever, become joint owners of the
instrument and may recover as joint payees what ever may be their mutual
rights.

5.Negotiation of Dishonored or Overdue Instruments

An instrument retains it negotiability in the real sense of the word with its
characteristic of conferring title upon a bonafide holder for value only during
the period of its currency. The currency of an instrument comes to an end when
it reaches its maturity or is dishonored earlier either by way of non-
acceptance or by non- payment. There after it is no more negotiable and any
person acquiring it with knowledge of its dishonor or maturity gets no better
rights than those of his transferor. The maturity of an instrument can be
examined from its face particularly when it is payable after a fixed period of
time so far as demand instruments are concerned. Maturity varies with the
nature of the document. A promissory note payable on demand remains current
until it is presented and dishonored.
A cheque is always payable on demand and remains current only for a short
period after issue. Where an instrument has been dishonored before i t reaches
its maturity and the fact of dishonor is apparent on its face, no one can become
its holder in due course there after. But if the fact of dishonor is not noted in
the instrument and it is transferred to a person who did not know, he will
acquire a good title to the instrument. Where an instrument is already over
due according to its own apparent tenor, a transferee of i t will acquire no
better title than that of the transferor not with standing the at he may have
taken the instrument bona fide and for a valuable consideration. 66

65
Muthuveeran v. Govindan, AIR 1961 Mad 518
66
Munaluri Narayanamoorthi v. Dwadasi Vumamaheswaran, AIR 1930 Mad 197.

63 | P a g e
An overdue or dishonored instrument carries with it all its blemishes. In a case
a note was issued without consideration and though it was given by the
payee to his endorsee f or consideration, it being already overdue at the time, it
was held that the endorsee was also affected by the want of consideration.
Where a person takes a note a long t ime after it is overdue, he takes it
subject to all the equities by which it is affected. In another case a note was
endorsed after it was due, and that is a suspicious circumstance, from which
the law infers that the party taking the note had knowledge of some infirmity
in the title of the holder, the endorsee then takes it subject to all the
objections to which it was liable in the hands of the person from whom he took
i t where an instrument is delivered to a person for a special purpose only and
not for negotiation and he ignoring that restriction, transfers it to another
while it was overdue, the transferee would be affected by the restriction.

Instruments remain negotiable till they are discharged by payment or by

some other satisfaction. A bill of exchange is negotiable and infinitum until i t
has been paid by, or discharged on behalf of the acceptor. Section 60 provides
that an instrument may be negotiated until payment or satisfaction at or after
maturity, but not after such payment or satisfaction. The consequence is that
where an instrument has reached its maturity, but has not been paid, it
remains negotiable. It can still be transferred, though, of course the transferee
being not a holder in due course, will be affected by any shortcoming in the
title of his transferor. The title of the transferee will be valid and he will be
entitled to recover payment. Thus it is not the maturity, but the fact of actual
payment at or after maturity, which puts an end to the negotiability of an
instrument. Even payment will not end the life of an instrument if it is not a
payment “at or after maturity”. Where payment is made before maturity, the
instrument remains valid for further negotiation till the time the fact of
payment is noted on it or it is withdrawn, cancelled or destroyed.

Dishonour of Cheque
Advancement and progress of society and concomitant increase of commerce
and various activities of trade, lead to increased complexity in transaction of
money between human beings and the ancient law givers were also forced by
the circumstances to evolve new rules for regulating such monetary
64 | P a g e
transactions. The present day economies of the world which are functioning
beyond the international boundaries without being inhibited by territorial
limits are relying to a very great extent on the mechanism of negotiable
instruments such as cheques and bank drafts. Since business activities have
increased, the attempt to commit crimes and indulge in activities for making
easy money has also accelerated. Thus besides civil law, an important
development both, in internal and external trade is the growth of criminality
and we find that banking business is every day being confronted with criminal
actions which has led to an increase in the number of criminal cases pertaining
to banking transactions. 67

Whenever a cheque is dishonoured, the legal machinery pertaining to the

dishonour of a cheque comes into motion. Section 92 reads as under:
“Dishonour by non payment- A promissory note, bill of exchange or cheque is
said to be dishonoured by non payment when the maker of the note, acceptor of
the bill or drawee of the cheque makes default in payment upon being duly
required to pay the same.”
Thus if on presentation the banker does not pay the cheque amount then
dishonour takes place and the holder acquires at once the right of recourse
against the drawer and the ot her parties on the cheque.

1 Ingredients of Liability Under Section 138

In order to constitute the offence punishable under section 138 of the Act, the following
ingredients are mandatory:
 The cheque is drawn on a bank for the discharge of any legally
enforceable debt or other liability.
 The cheque is returned by the bank unpaid.
 The cheque is returned unpaid because the amount available in the
drawer‟s account is insufficient for paying the cheque.
 The payee has given a notice to the drawer claiming the amount within
30 days of the receipt of the information by the bank.

67
Sivarama Krishan v. M. Kunthu, ILR 33 Mad 134.
Ibid.

65 | P a g e
  The drawer has failed to pay the cheque amount within 15 days from
the date of receipt of notice. 68

1 Meaning of Debt
Debt means something owed to another, a liabil ity, an obligation. A chose
–in – action which is capable of being assigned by the creditor to some
other person. The assignment must be in writing and must apply to the
whole of the debt.
Debt means something which one person is bound to pay to or perform for another. It
means an obligation and the state of owing something to another, as to be in debt.
It must be an existing debt and not a contingent debt. It must be a debt
accrued and not a debt in future. Debtor means one who owes money, or
is under some obligation to another.

2.Meaning of Liability
The word liability is defined in the Explanation to section 46 of the
Presidency Towns Insolvency Act, 1909. Liability means the state of being
liable. It means something for which a man is l iable and includes pecuniary
liability or limited liability. Payment for taxes, house rents may amount to
enforceable liability. The Law Lexicon states :

“Liability: A broad term; i t may be employed as meaning the state of being

liable, that for which on e is responsible or liable; obligation is general; that
condition of affairs which given rise to an obligation to do a particular thing to
be enforced by action; responsibility; legal responsibility. In other words, the
condition of one who is subject to a charge or duty which may be judiciall y
enforced.”

3.Interpretation of Terms
It is submitted that the above mentioned terms should be interpreted within
the limited meaning so as to include a legally enforceable debt or liability.

68
Hawkings v. Cardy (1699) 1 Ld Raym 360:91 ER1137.

66 | P a g e
Different Acts have given different definitions of these terms. Various
meanings have been given under the Income Tax Act, 1961, Wealth Tax Act,
1957, Indian Contract Act, 1872 and so on. Similarly there may be various
type of liabilities which may arise in different ways and they may exist real
or contingent ones and may be legally enforceable or not. However, we are
concerned only with a legally enforceable debt or liability as far as section
138 of the Act is concerned. There are various debt which are not legally
enforceable by law, like a debt due on a wagering contract is not backed by
a lawful consideration. Similarly a payment made in a gratuitous manner is
also not covered under Section 138 of the Negotiable Instruments Act,
1881. 69

2.Causes of Dishonour of a Cheque

The most common reasons for dishonour of a cheque are enumerated below : -

1 Refer to Drawer
In the Dictionary of Banking by Perry and Ryder, “Refer to drawer” is described as
under: - “ Refer to drawer”: The answer put upon a cheque by the drawer
banker when dishonouring a cheque in certain circumstances. The most usual
circumstance is where the drawer has no available funds for payment or has
exceeded any arrangement for accommodation. The use of the phrase is not
confined to this case, however, it is the proper answer to put on a cheque
which is being returned on account of the service of a Garnishee Order,
and it is likewise properly used when a cheque is returned on account of the
drawer being involved in bankruptcy proceedings.”

Although in London Joint Stock Bank v . Macmillan & Arthur , it was suggested by
Lord Shaw that “Refer to drawer” could be used in cases where there were any
reasonable grounds for suspecting that the cheque had been tampered with, such an
answer would rarely be given in practice for any reasons other than those given
70
above. In Flach v. London & South Western Bank Ltd. Mr. Justice Scrutoon said
that the words “Refer to Drawer” in their ordinary meaning amounted to a
statement by the bank: “We are not pa ying; go back to the drawer and ask why” or

69
Shaik Md. Hussain v. M. Reddaiah, (1979) 1 Andh RLT 25.
69
Borough v. White, (1825) 4 B& C 325:107ER:107ER 1080.

70
Ashurst v. Royal Bank of Australia, (1856) 27 LT (OS) 168.

67 | P a g e
else “go back to the drawer and ask him to pay”.

It is doubtful whether the unjustified use of the phrase, however, will involve a
banker in an action for libel, in addition to that for breach of contract.
Where a non-trading customer is concerned he has to prove loss to get more
than nominal damages for breach of contract, but not for libel. A trading
customer can obtain substantial damages without proving specific damages,
although by doing so he can increase the amount awarded.

In Frost v . London Joint Stock Bank , the general rule was laid down that where
words are not obviously defamatory it is not what they might convey to a
particular class of persons that is the test, but what they would naturally
suggest to a person of average intelligence. The better view is that the words
“Refer to Drawer” are not l ibellous. This is still the law although doubts
have been expressed in the light of evidence l ikely to be tendered.

Thus, it generally means to convey to the holder that he should refer to the
drawer for payment, that is the bank has not sufficient funds at drawer‟s
disposal to honour the cheque.

In Plunkett v. Barclays Bank Ltd, it has been held that the words “Refer to
Drawer” were not libellous Scrutton J., saying on this point that in his opinion
the words in their ordinary meaning amounted to a statement by the bank,
“We are not paying; go back to the drawer and ask why”, or else, “Go back to
the drawer and ask him to pay”. In leading cases in the Law of Banking by
Chorley & Smart it is further said that in Plunkett‟s case (supra) Du Parcq J.
adopted the view of Scrutton J. as to the libel issue before him, but as time
passed it became increasingly unrealistic to expect contemporary opinion
to agree and by 1950 the decisions of the Irish Supreme Court ( not binding
on English courts, but to be treated with respect) was not unexpected. Three
cheques were wrongly dishonoured with the answer, “Refer to Drawer”, two
of the cheques bearing also the word “re-present”. A jury awarded £1 damages
for breach of contract and £400 for libel, and this verdict was affirmed in the
Supreme Court, where although two of the judges accepted the bank‟ s
argument that the words were incapable of a defamatory meaning, the other
two rejected it, and distinguished the Flach v. London & South Western Bank
Ltd , decision on the grounds that there the dishonour was not in fact
wrongful.
68 | P a g e
If a cheque is retuned with an endorsement “refer to drawer” it cannot be safely
interpreted to mean any of the two reasons contemplated under the Act. This
question was raised in V.S. Krishnan v. Narayanan , bringing the decision of
the King‟ s Bench in Plunkett v. Barclays Bank Ltd , to the notice of the court
it was said –71

“The offence under section 138 of the Negotiable Instruments Act will be
attracted only i f the cheque is returned by the Bank unpaid either because of
the amount of money standing to the credit of that account is insufficient to
honour the cheque or that it exceeds the amount arranged t o be paid for
from the account by an agreement made with the bank. On facts, since the
cheque had been returned with an endorsement “refer to drawer”, the return
was not either due to insufficient funds in the account to honour the cheque or
because the amount shown in the cheque exceeded the arrangement and,
therefore, even on this ground, no offence was made out.”

At times it is also suggested that the reasons, “Not arranged for” or “Exceeds
Arrangement” may lead to an unwarranted disclosure of the customer‟ s
account and may amount to a libel. For this reason the term “Refer to Drawer”
should be preferred.

So far the amended Negotiable Instruments Act is concerned, the words

“Refer to Drawer” have been interpreted by the various High Courts. It was
held by the Andhra Pradesh High Court that from the endorsement “Refer to
Drawer” the complainant couldn‟ t draw an inference that the cheque was
issued without funds and that in such a case offence under section 138 was
not made.

In case a cheque is returned with the remarks “Refer to Drawer” then the
proceeding cannot be quashed threshold without evidence. By the use of the
phraseology the banker euphemistically by way of courtesy to his customer
informs him that his bank account is not credit with money sufficient to honour
the cheque and that it exceeds the amount arranged to be paid from that
account by an arrangement made to the bank. This is to convey the reason in
a most civilized manner and in a courteous way without hurting his feelings.

71
V.S. Krishnan v. Narayanan ,
Bench in Plunkett v. Barclays Bank Ltd
69 | P a g e
In another case captioned as Jaya Lakshmi v. Rashida , the Court held that
the endorsement refer to drawer is a euphemistic way of informing the
payee that the drawer of the cheque has got no amount to his credit to honour
the cheque. Similarly in Manohar v. Mahalingam , Justice Padmini
Jesudurai has held that the answer “Refer to Drawer” after adopted by the
bankers‟ could mean anything from shortage of funds to death or insolvency of
the drawer and could also include insufficiency of funds. It is seen therefore,
that the nomenclature of the return by itself would not be decisive of the
cause of return. 72
2.Exceeds Arrangement
This term is commonly meant to convey that the drawer has credit limit but
the amount exceeds the drawing power. Not arranged means no overdraft
facility exceeding the l imit already sanctioned is existing or overdraft facility
not sanctioned.

3.Full Cover not Received

It is generally meant to show that adequate funds to honour the cheque do not
exist or that the customer has not given adequate security to cover the over
draft which might be created by paying the cheque.

4.Effects not Cleared

It is meant to convey that the drawer has paid the cheques or bills, which are
in course of collection but their proceeds are not available for meeting the
cheque. If there is an agreement express or implied such as would arise out of a
course of business to pay against uncleared effects, a banker would be bound to
honour cheques drawn against such effects and he cannot arbitrarily and
without notice withdraw or undo such facilities.

5 Not Sufficient or Funds Insufficient

When the funds in a customer‟ s account are insufficient to meet a cheque,
which has been presented to the ba nker through the clearing or otherwise,
the cheque, on being returned unpaid, is usually marked with the words “not
sufficient”, “insufficient funds” or “not sufficient funds”.

6 Not Provided for

72
Jaya Lakshmi v. Rashida
70 | P a g e
An answer sometimes written by a banker on an instrument, which is being
returned unpaid for the reason that the drawer has failed to provide funds to
meet the cheque amount . A better answer in these circumstances is “Refer to
Drawer”.

7 Present Again

These words are sometimes written by a banker upon a cheque, which is

returned unpaid because of insufficient funds in the customer‟s account to
meet it. It is not, however, by itself a correct answer to give, as i t does not
afford any reasonable explanation why the cheque has been returned. 73

Sometimes the words are joined with another answer, as “Refer to Drawer –
Present again”, “Not sufficient - Present again”. No doubt the words “Present
again” are used with the idea of minimising the risk of injury to the drawer‟ s
credit by returning the cheque, but it is perhaps questionable whether they
are altogether prudent words to be used as the these words do not depict any
clear reason for dishonour of the instrument.

8 Payment Stopped by Drawer

One of the reasons on account of which the Banker can refuse to make the
payment of a cheque is that the drawer has stopped the payment. The
customer has an indefeasible right to give notice his bankers to stop payment
of a cheque which he has issued. The notice should be in writing and should
bear accurate particulars of the cheque and should be signed by the drawer. In
case a Bank passes a cheque after such stop payment directions has been
received, it shall be liable for so doing.

In London Provincial South Western Bank Ltd. v. Buszard , it was held by the
Court that notice to one branch was not notice to the other branch. The
question arises as to who should give such notice. Usually, i t is the drawer of a
cheque who is the only person who is authorised to stop payment of it but very
often the Bankers receives notice from a payee of a cheque that it has been lost
or stolen. Where notice is received from the payee, he should be requested to
inform the drawer at once, so that the latter may instruct the Bankers to stop

73
Sanjai Makkar and Ors. v. Saraswati Industrial Syndicate Limited and Ors, 1999 Cri.LJ 1958.
71 | P a g e
payment. If the cheque is presented before such instructions are at hand, the
Banker will exercise its discretion before honouring it. Similarly, in those
cases where a cheque is signed by several persons and is lost, a notice to one
of them, i .e. one executor, one trustee, secretary, etc., is usually acted upon by
a bank. Where the account is in several names and the lost cheque is signed by
only one of the account holders or by one partner, a notice from any of the
holder or partner is a sufficient authority to a Bank as justification to stop
payment of the cheque. In case the drawer so likes, at a later stage, he can
cancel his order to stop payment but it should be done in writing and be signed
by him. 74

After the Negotiable Instruments Amendment and Miscellaneous Provisions

Bill, 2002 ( Bill No. 55 of 2002 ) , drawers who issue cheques knowingly well
that cheque is not going to be honoured on presentation, try to create such
like circumstances whereby banks return the cheque with such
endorsements as “Stop payment”, “Refer to Drawer” and “A/c closed”. This is
with a view to escape from criminal liability. The question arises as to whether
the offence under the section 138 shall be committed in case the cheque
issued by a person is dishonoured on account of such reasons.

The pre ponderance of the view of the said judicial decisions is that in case a
cheque is retuned dishonoured with such remarks and if it can be proved that
there was also insufficiency of funds in the account or that the amount of the
cheque issued by drawer of t he cheque had exceeded the arrangement made,
then irrespective of such action of the drawer, it would constitute an
offence under the amended Act. The necessary condition, however, is that
there must be a specific averment in the complaint to the effect that the
cheque had bounced on account of insufficiency of funds and on account of the
amount of the cheque having exceeded the account with the bank before the
cheque reaches the bank for presentation, is actually causing insufficiency of
money „ standing to the credit of that account.

Issuance of Notice Clause (b) of the proviso of Section 138 states that the
payee or the holder in due course of the cheque makes a demand by giving a
notice within 15 days of the receipt of information by him regarding the

74
In London Provincial South Western Bank Ltd. v. Buszard ,
72 | P a g e
dishonour of the cheque. Now the period of 15 days has been increased to that
of 30 days by the Amendment Bill No. 55 of 2002. In this way this proviso
stipulates –

A) The payee is the holder in due course.

B) A demand in made by giving a notice by the payee to
the drawer.
C) The notice is given within a period of 15 days ( now 30
days as per new provisions) from the date of receipt of
the information about dishonour.
The provision of a notice in the Act has been enacted so as to give an
opportunity to the person who has drawn the cheque to make the payment in
case there is no mala fide on his part. 75
1 Written Form
Clause (b) of proviso to Section 138 of the Negotiable Instruments Act, 1881
contemplates „notice in writing‟. It does not say that is should mandatorily be
sent by Registered Post or that it should be served by post. Section 27 of the
General Clauses Act cannot be transposed into Section 138 of the Negotiable
Instruments Act, where the „service by post‟ is not contemplated and what is
contemplated is „notice in writing‟.
2.Proper Addres
The notice in writing is to be sent at the proper address of the account with the bank
before the cheque reaches the bank for presentation, is actually causing
insufficiency of money „ standing to the credit of that account.

Issuance of Notice Clause (b) of the proviso of Section 138 states that the
payee or the holder in due course of the cheque makes a demand by giving a
notice within 15 days of the receipt of information by him regarding the
dishonour of the cheque. Now the period of 15 days has been increased to that
of 30 days by the Amendment Bill No. 55 of 2002. In this way this proviso
stipulates –

1. The payee is the holder in due course.

2. A demand in made by giving a notice by the payee to

75
Sri Srinivasa Trading Co. v. State of AP, (1999) 96 Comp. Cases 915
73 | P a g e
 the drawer.
3. The notice is given within a period of 15 days ( now 30
days as per new provisions) from the date of receipt of
the information about dishonour.

The provision of a notice in the Act has been enacted so as to give an

opportunity to the person who has drawn the cheque to make the payment in
case there is no mala fide on his part.

2.Receipt of Notice
To constitute an offence under Section 138 of the Negotiable Instruments Act,
1881, the complainant is obliged to prove its ingredients which include the „
receipt of notice‟ by ac cused under clause (b). It is to be kept in mind that it
not the „ giving of notice‟ which makes the offence, but is the „receipt‟ of
the notice by the drawer which gives cause of action to complainant to file
the complaint within the statutory period.
As per settled law that without taking peremptory action in exercise of his
right under clause (b) of Section 138 of the Negotiable Instruments Act, 1881,
the payee cannot go on presenting the cheque so as to enable him to exercise
his right at any point of t ime during the validity of the cheque. But once he
gives a notice under clause (b) of the proviso to Section 138 of the Act, he
forfeits the right of presenting the cheque all over again, for, in the case of
failure of drawer to pay the money within the stipulated time, the drawer
would be liable for the offence and the cause of action for filing the
complaint will arise with the period of one month for filing the complaint
being required to be reckoned from the day immediately following the day on
which the period of fifteen days from the date of the notice by the drawer
expires.
Statutory notice of demand must be a written one and not an oral notice. When
the complainant brought fact of dishonour of cheque to notice of accused
orally but on request by acc used, complainant allowed three months time.
On second presentation, cheque was again dishonoured. Statutory Notice after
second dishonour by complainant was well within validity period then
complaint filed after second dishonour within validity period was proper.
4 Constructive Service of Notice
74 | P a g e
It has been held that sub- Section ( c) of Section 138 does not at all
contemplate any constructive notice. If constructive notice has been
contemplated under the said sub -Section by the Legislature, sufficient
phraseology would have been utilised for such a purpose. The language used
therein, namely, „receipt of the said notice‟, unambiguously points out
actual receipt of the notice. In the case in hand notice issued had not been
actually served but it has been returned with a postal endorsement as „not
found‟. Such being the case, it cannot at all be stated that the provisions of sub
-Section ( c) of the said Section had been duly complied with and the non -
compliance of the said provision is sufficient enough for the prosecution to be
thrown back, stock and barrel. 76

Assuming for arguments that the provisions of sub -Section ( c) of the said
Section contemplates constructive notice, even then it cannot be stated that
in the case on hand, there is a plausibility to come to the conclusion of the
existence of such a constructive notice. It is not as if the notice has been
returned as “refused to receive” and in such an eventuality, one can attribute
knowledge on the part of the person responsible for the refusal of such a
notice. In the case of a postal acknowledgement marked as „ not found‟, which
is exactly the situation in the case on hand, it cannot be stated that there could
have been any sort of willful evasion of such a notice, in as much as issuance
of such a notice could not be put to the knowledge of the person to whom
it was intended. Held therefore that it cannot be stated that the complaint had
complied with the provisions of sub Section ( c) of Section 138 of the Act and
consequently, he has to face the music of dismal failure of his complaint
being thrown out.

Provisions requiring notice to be given are generally construed liberally. In the

context in which notice to the drawer is contemplated in clause ( b) of the
proviso of Section 138, a liberal interpretation is needed in favour of the
person who is under the statutory obligation of giving notice since he is the
loser in the transaction and it is for safeguarding his interest that the new
provisions have been made. The giving of notice and receipt of notice are two

76
Ion Exchange Finance Ltd. v. Firth India Steel Co. Ltd., (1999)2 BC 191.
Anil Hada v. Indian Acrylic Ltd., (2000)1 Crimes 210.

75 | P a g e
different things but even so the court held that in the present context if the
payee has despatched notice to the correct address of the drawer reasonably
ahead of the expiry of 15 days, i t would be sufficient to show that the not
ice has been received by the opposite party. 77

5 Cause of Action
The Allahabad High Court held that the cause of action under the proviso ( b)
and ( c) of Section 138 of the Negotiable Instruments Act, for filing
complaint cannot be said to arise me rely on the cheque being dishonoured but
will arise only after the giving of notice of demand of a the amount of the
cheque by payee or holder in due course of the cheque to the drawer of the
cheque and coupled with the failure of the drawer of the cheque to pay the
amount within 15 days of the date of service or receipt of the notice on or by
him.Whereas the Madras High Court held that the mere presentation and
dishonour do not create the cause of action. It is the notice, which gives the
cause. There is no restriction on the number of times for presenting the cheque
for payment. Accordingly, any one of those presentments, within the time limit
of six months, may be chosen for given notice and launching prosecution. In
this case it followed its earlier decision. In another case it held that the date of
the issue of the cheque could be enquired at the trial.
A cheque can be presented by the payee or i ts holder in due course on
different occasions but within the prescribed period of six months or the
period of validity of the cheque whichever is earlier, further a clear
stipulation that upon the dishonouring of the cheque for the first time, the
payee has not taken any action as postulated in terms of provision (b) and (c)
of provision to Section 138 of the Act.
Failure to file complaint on the dishonour of a cheque on the first occasion
is not a bar for initiation of a prosecution subsequently, and successive
dishonour of cheque on different occasions, of course, presented within its
period of validity, will have to be construed as constituting separate cause of
action for the initiation of prosecution. According to Sections 138 and 142( b)
cause of action to file complaint arises on the expiry of notice demanding

77
Avon Industries Ltd. v. Integrated Finance Co. Ltd., (2002)1 BC 88.
BSI Ltd. v. Gift Holidays Pvt. Ltd., (2000)1 Crimes 261 SC
76 | P a g e
payment and not earlier. 78

Procedure for Filing of Complaint

The definition of a „complaint‟ is not contained in The Negotiable
Instruments Act itself. However, the term „complaint‟ has been defined Code
of Criminal Procedure, 1973 as under:

„Complaint, means any allegation made orally or in writing to a Magistrate

with a view to his taking action under this Code, that some person, whether
known of unknown, has committed an offence, but does not include a police
report.‟

Further the explanation appended to the above provision states that a report
made by a police officer in a case which discloses, after investigation, the
commission of a non cognizable offence shall be deemed to be a complaint;
and the police officer by whom such report is made shall be deemed to be the
complainant.

It is submitted that the complaint filed before the Magistrate should set out
the allegations, which prima facie make out an offence under the Act stated
therein. It should further be accompanied by a prayer therein to take
cognizance of the said offence and t o compel the accused by legal process to
stand his trial under law. Under the statutory provisions of Section 138 of
the Negotiable Instruments Act, the Court is empowered to take cognizance of
such offence only if the complaint is preferred by the payee o r the holder in
due course of the cheque. In case of Company or Firm it will be filed by its
authorized officer or representative.

1 Summary Trial

The Negotiable Instruments Act, post amendment by the legislature in the

year 2001, specifically provides for all offences under the Chapter to be
tried by Judicial Magistrate of First Cl ass or Metropolitan Magistrate in
accordance with the Summary Trial provisions of sections 262 to 265 of
CrPC. It further provides that if at the commencement or during the course of
summary trial, the Magistrate finds that nature of case was such that a

78
Kusum Ignot & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 100 Comp. Cas 755 SC. (1996) 86
Comp. Cases 487.

77 | P a g e
sentence of imprisonment exceeding one year may have to be passed or for
some other reason the Magistrate comes to conclusion that case should not be
tried summarily, the Magistrate has to pass an order after hearing the parties,
giving reasons as to why he wishes to try the case not in a summary manner but
as a normal summon case. He shall recall witnesses who may have been
examined and proceed with the case to hear it as a summon trial case. 79

However, the procedure so prescribed could not resolve the issues arising
from the adversities to adopt the summary procedure. The absence of the
parties for the hearing or the absence of the respective advocates, were highly
detri mental to the objective behind prescribing a summary procedure to be
followed in cases of dishonour of cheques. Subsequently, in the case of
Rajesh Agarwal v. State and Others, the Hon'ble Delhi High Court prescribed
certain guidelines with respect to the summary trial procedure which would be
followed with respect to offences under section 138. The summary trial
procedure to be followed for offences under section 138, would thus be as
under:
Step I: On the day complaint is presented, if the complaint is accompanied by
affidavit of complainant, the concerned MM shall scrutinize the complaint &
documents and if commission of offence is made out, take cognizance &
direct issuance of summons of accused, against whom case is made out.

Step II: If the accused appears, the MM shall ask him to furnish bail bond to
ensure his appearance during trial and ask him to take notice u/s 251 Cr.P.C.
and enter his plea of defence and fix the case for defense evidence, unless an
application is made by an accused under section 145(2) of NI Act for
recalling a witness for cross examination on plea of defence.
Step III: If there is an application u/s 145( 2) of NI Act for recalling a witness
of complainant, the court shall decide the same, otherwise, it shall proceed to
take defence evidence on record and allow cross examination of defence
witnesses by complainant. 80
Step IV: To hear arguments of both sides.
Step V: To pass order/judgment.
Private Complaint Clause (a) of Section 142 contemplates of filing of a private

79
Rajesh Agar wal v. State and Other
80
K.Mahadevan v. Y.Venkatesh, (1992) 3 ALT 634.
Y.Venkateshwar Rao v. Mahee Handlooms P. Ltd., (1994) 79 Comp. Cas. 206
78 | P a g e
complaint only. This section does not give any indication to refer such a private
complaint filed by the payee or the holder in due course to the police for
investigation under Section 156( 3) of the Code of Criminal Procedure by the
magistrate before whom such a complaint is filed.

The Andhra Pradesh High Court held that the cognizance of a complaint by a
Magistrate on police complaint not to be valid. In another case the same High Court
has held that the Magistrate has no power to refer to the matter to the police.

2 Bar under Other Statutes/ Provisions

There exist special statues meant for protecting the interests of the creditors.
Such statutes incorporate provisions to protect the assets in the hands of the debtor
so that the same are not misapplied and may be available only for rateable
distribution and not otherwise. These statutes generally bar or provide for stay of suits
and other proceedings, so that no charge or encumbrance is created by these
proceedings on the assets of the debtor. However it has been categorically opined in
various judicial pronouncements that the proceedings under section 138 of the Act
are not barred even by the exclusionary clauses contained in such special statutes.

Section 446 of the Companies Act 1956 which relates to liquidation of a company
and provides for the stay of suits and other proceedings has been held, not to apply to
proceedings under section 138, since the proceedings therein do not relate to the
assets of the company.

It has been held that a company court in winding up proceedings would not have
jurisdiction to stay criminal prosecution nor is its permission required to prosecute
company for offences. The expression „legal proceedings‟ must be read
ejusdem generis with „suit‟ and can only mean civil proceedings, which have a
bearing so far as winding up is concerned. Even where the complaint against
company is suspended due to the winding up ordered by company court, the
prosecution of the directors can continue since the prosecution of company is not sine
qua non for the prosecution of the directors.

In Bharat N. Mehtha v. Mansi Finance (Chennai) Ltd. it has been held that the words
„any suit or other proceedings‟ in the insolvency Act do not refer to personal act
committed by the accused committing offence and thus, proceedings under section
138 are not barred. 81

In Prudential Capital Market Ltd. v. State of Bihar, the Supreme Court held that there

81
Prudential Capital Market Ltd. v. State of Bihar,
79 | P a g e
was no provision under the Reserve Bank of India Act 1934 which prohibited any
criminal proceedings under other Acts to continue against Non- Banking Finance
Companies. The Provision of Section 58E bars taking cognizance of offences
commissioned under the said Act namely the Reserve Bank of India Act 1934. 82 The
power of company law Board under section 45QA of the Act does not in any manner
take away the power of criminal court to continue with criminal proceedings.
Jurisdictional Aspect Originally the Act was silent on the matter pertaining to the
relevant jurisdiction with respect to filing of criminal complaint in case the offence
of dishonour of the cheque is committed under Section 138. Since the Criminal courts
are approached for filing of such complaints, the issue needs to be examined from the
point of view of the Criminal Procedure Code, 1973.

CHAPTER IV
PRESUMPTIONS AND PRINCIPLE OF STRICT
LIABILITY

Meaning of Presumption
A presumption is an inference as to the existence of a fact not actually known
arising from its connection with another which is known.

A presumption is a conclusion drawn from the proof of facts or circumstances

and stands as establishing facts until overcome by contrary proof. A
presumption is a probable consequence drawn from facts ( either certain, or
proved by direct testimony) as to the truth of a fact alleged but of which there
is no direct proof. It follows, therefore that a presumption of any fact is an
inference of that fact from others that are known . The word 'presumption'
inherently imports within its ambit an act of reasoning - a conclusion of the
judgment; and it is applied for denoting such facts or moral phenomena, as

82
In Bharat N. Mehtha v. Mansi Finance (Chennai) Ltd
80 | P a g e
from experience we known to be invariably or usually or commonly,
connected with some other related facts. 83

Presumption literally means "taking as true without examination or proof".

A presumption is a probable inference which common sense draws from

circumstances usually occurring in such cases. The slightest presumption is
of the nature of probability, and there are almost infinite variations from
slight probability to the highest moral certainty. A presumption, in strict
terms, results from a previously known and ascertained connection between
the presumed fact and the fact from which the inference is drawn.

1 Presumptions in Favour of the Complainant

It is an established position of law that under the scheme of Negotiable

Instruments Act, by virtue of sections 118 and 139 the statutory presumption is
created in favour of the complainant and the Court has to presume and proceed
on the basis of this presumption unless it is dislodged by the accused on the
strength of leading cogent and convincing evidence in support of his claim.
The special rules of evidence contain certain presumptions concerning
negotiable instruments and the estoppels arising from them. They are
presumptions of law. The court is bound to raise such presumptions. The
presumptions being rebuttable, the party against whom a presumption is
drawn can lead evidence to the contrary to overthrow the presumption.
There is, for example the presumption that all instruments have been issued or
transferred for consideration. It relieves the plaintiff/complainant of the
initial burden of proving that he became a holder for consideration. The
opposite party may show that there was no consideration, in which case the
plaintiff/ complainant will have to prove consideration, the presumption in his
favour having been rebutted. 84
In a suit to enforce a simple contract, the plaintiff has to aver in his pleading
that i t was made for good consideration and must substantiate it by evidence.
But to this rule, the negotiable instruments are an exception. In a significant
departure from the general rule applicable to contracts, Section 118 of the Act

83
P. Ramanatha Aiyar, Advanced Law Lexicon, 3rd Edn., 3697.
Per Abbot C.J., R. versus Burdett 4 B. & Ald, 161.
84
M/s. Kumar Exports v. M/s. Sharma Carpets, 2009(1) RCR (Criminal) 478.
Dutta‟s, Commentary on The Negotiable Instruments Act, 1881, at 700 (2013).
81 | P a g e
provides certain presumptions to be raised. This Section lays down some
special rules of evidence relating to presumptions. The reason for these
presumptions is that, negotiable instrument passes from hand to hand on
endorsement and it would make trading very difficult and negotiability of the
instrument impossible, unless certain presumptions are made. The
presumption, therefore, is a matter of principle to facilitate negotiability as
well as trade.
Section 118 of the Act provides presumptions to be raised until the contrary is
proved (i) as to consideration, (ii) as to date of instrument, (iii) a s to time
of acceptance, ( iv) as to time of transfer, ( v) as to order of indorsements, (vi)
as to appropriate stamp and (vii) as to holder being a holder in due course.
Section 139 of the Act provides that i t shall be presumed, unless the
contrary is proved, that the holder of a cheque received the cheque of the
nature referred to in Section 138 for the discharge, in whole or in part, of any
debt or other liability. Presumptions are devices by use of which the courts
are enabled and entitled to pronounce on an issue notwithstanding that there
is no evidence or insufficient evidence. Under the Indian Evidence Act all
presumptions must come under one or the other class of the three classes
mentioned in the Act, namely, ( 1) "may presume" (rebuttable), (2) "shal l
presume" (rebuttable) and ( 3) "conclusive presumptions" ( irrebuttable). The
term 'presumption' is used to designate an inference, affirmative or
disaffirmative of the existence a fact, conveniently called the "presumed
fact" drawn by a judicial tribunal, by a process of probable reasoning from
some matter of fact, either judicially noticed or admitted or established by
legal evidence to the satisfaction of the tribunal.

2 ‘May Presume’ and ‘Shall Presume’

Section 4 of the Evidence Act inter- alia defines the words 'may presume' and 'shall
presume‟ as follows: -

'may presume' - Whenever it is provided by this Act that the Court may
presume a fact, it may either regard such fact as proved, unless and until it is
disproved or may call for proof of It.
'shall presume' - Whenever it is directed by this Act that the Court shall
presume a fact, it shall regard such fact as proved, unless and until it is
82 | P a g e
disproved."
It is submitted that the former case the Court has an option to raise the
presumption or not, but in the latter case, the Court must necessarily raise the
presumption. If in a case the Court has an option to raise the presumption
and it raises the presumption, the distinction between the two categories of
presumptions ceases to exist and the fact is presumed, unless and until it is
disproved. 85

Applying the definition of the word 'proved' in Section 3 of the Evidence Act to
the provisions of Sections 118 and 139 of the Act, it becomes evident that in a
trial under Section 138 of the Act a presumption will have to be made that
every negotiable instrument was made or drawn for consideration and that it
was executed for discharge of debt or liability once the execution of
negotiable instrument is either proved or admitted. As soon as the
complainant discharges the burden to prove that the instrument, say a note, was
executed by the accused, the rules of presumptions under Sections 118 and
139 of the Act help him shift the burden on the accused. The presumptions
will live, exist and survive and shall end only when the contrary is proved
by the accused, that is, the cheque was not issued for consideration and in
discharge of any debt or liability. A presumption is not in i tself evidence, but
only makes a prima facie case for a party for whose benefit i t exists.

4.1.2.1 Effect of the Expressions 'May Presume', 'Shall Presume' and

'Conclusive Proof'

What would be the effect of the expressions 'May Presume', 'Shall Presume'
and 'Conclusive Proof' has been considered in Union of India (UOI) v. Pramod
Gupta (D) by L.Rs. and Ors. , in the following terms: "...It is true that the
legislature used two different phraseologies " shall be presumed" and " may be presumed"
in Section 42 of the Punjab Land Revenue Act and furthermore although provided for the
mode and manner of rebuttal of such presumption as regards the right to mines and
minerals said to be vested in the Government vis- a- vis the absence thereof in
relation to the lands presumed to be retained by the landowners but the same

85
Bharat Barrel & Drum Manufacturing Company v. Amin Chand Payrelal, 1999(2) RCR(Civil) 615
83 | P a g e
would not mean that the words " shall presume" would be conclusive. The
meaning of the expressions " may presume" and " shall presume" have been
explained in Section 4 of the Evidence Act, 1872, from a perusal whereof it
would be evident that whenever it is directed that the court shall presume a
fact it shall regard such fact as proved unless disproved. In terms of the said
provision, thus, the expression " shall presume" cannot be held to be
synonymous with " conclusive proof"..." 86

In terms of Section 4 of the Evidence Act whenever i t is provided by the Act

that the Court shall presume a fact, it shall regard such fact as proved unless
and until it is disproved. The words 'proved' and 'disproved' have been defined
in Section 3 of the Evidence Act (the interpretation clause) to mean : -

" Proved - A fact is said to be proved when, after considering the matters before
it, the Court either believes it to exist, or considers its existence so probable
that a prudent man ought, under the circumstances of the particular case, to act
upon the supposition that it exists.
Disproved - A fact is said to be disproved when, after considering the
matters before it the Court either believes that i t does not exist, or considers
its non-existence so probable that a prudent man ought, under the
circumstances of the particular case, to act upon the supposition that it does
not exist."
Applying the said definitions of 'proved' or 'disproved' to principle behind
Section 118( a) of the Act, the Court shall presume a negotiable instrument to
be for consideration unless and until after considering the matter before it, it
either believes that the consideration does not exist or considers the non -
existence of the consideration so probable that a normal prudent man ought,
under the circumstances of the particular case, to act u pon the supposition
that the consideration does not exist. For the purpose of rebutting such
presumption, what is needed is to raise a probable defence. Even for the
said purpose, the evidence adduced by the complainant could be relied upon. 87

86
Union of India (UOI) v. Pramod Gupta (D) by L.Rs. and Ors
87
Mohammed Murtuza Mohammed Yusuf v. Gulam Nabi Abdul Rehman & another, 2010(3) CCC
245 Bom.
84 | P a g e
Presumption Under Section 118

Section 118 of the Act reads as follows– “118. Presumptions as to negotiable

instruments - Until the contrary is proved the following presumptions shall be
made :
 of consideration : that every negotiable instrument was made or drawn for
consideration, and that every such instrument which i t has been accepted,
endorsed, negotiated or transferred, was accepted, endorsed, negotiated or
transferred for consideration;
 as to date : that every negotiable instrument bearing a date was made or
drawn on such date ;
 as to time of acceptance : that every accepted bill of exchange was
accepted within a reasonable time after its date and before its maturity;as
to time of transfer : that every transfer of negotiable instrument was made
before its maturity; 88
 as to order of endorsement : that the endorsements appearing upon a
negotiable instrument were made in the order in which they appear thereon;
 as to stamp : that a lost promissory note, bill of exchange or cheque waS
duly stamped; that holder is a holder in due course : that the holder of a
negotiable instrument is a holder in due course.

Provided that, where the instrument has been obtained from its lawful owner,
or from any person in lawful custody, thereof, by means of an offer or fraud,
or has been obtained from the maker or acceptor thereof by means of an offence
or fraud or for unlawful consideration, the burden of proving that the holder
is a holder in due course lies upon him.

Albeit in a civil case, a Division Bench laid down the law in the following terms " Upon
consideration of various judgments as noted hereinabove, the position of law
which emerges is that once execution of the promissory note is admitted, the
presumption under Section 118(a) would arise that it is supported by a
consideration. Such a presumption is rebuttable. The defendant can prove the

88
Presumption Under Section 118

85 | P a g e
non-existence of a consideration by raising a probable defence. If the
defendant is proved to have discharged the initial onus of proof showing that
the existence of consideration was improbable or doubtful or the same was
illegal, the onus would shift to the plaintiff who will be obliged to prove it as
a matter of fact and upon i ts failure to prove would disentitle him to the grant
of relief on the basis of the negotiable instrument. The burden upon the
defendant of proving the non- existence of the consideration can be either
direct or by bringing on record the preponderance of probabilities by reference
to the circumstances upon which he relies. In such an event, the plaintiff is
entitl ed under law to rely upon all the evidence led in the case including
that of the plaintiff as well. In case, where the defendant fails to discharge the
initial onus of proof by showing the non- existence of the consideration, the
plaintiff would invariably be held entitled to the benefit of presumption arising
under Section 118(a) in his favour. The court may not insist upon the
defendant to disprove the existence of consideration by leading direct
evidence as the existence of negative evidence is neither possible nor
contemplated and even if led, is to be seen with a doubt..." 89

Presumption Under Section 139

There is a presumption in favour of the holder under Section 139 of the
Negotiable Instruments Act which reads thus: " It shall be presumed, unless the
contrary is proved, that the holder of a cheque received the cheque of the
nature referred to in Section 138 for the discharge, in whole or in part, or any
debt or other liability." 90
The phrase „ shall presume‟ is explained under Section 4 of Indian Evidence
Act, 1872 which says that when it is directed by this Act that the court shall
presume a fact, it shall regard such fact as proved unless and until it
disproved. Thus, in this case onus will be on the drawer to prove:

that cheque was not received by the holder for discharge of a debt or
other liabilities;

that the person in possession of cheque is not the holder;

that cheque represented for payment of any gratuitous act like donation,

89
presumption under Section 118(a)
90
Presumption Under Section 139 Of NI ACT

86 | P a g e
 gift etc.
This presumption is available only in cases of cheques as pe r the scheme of Chapter XVII
and not against other negotiable instruments. Under section 139 of the Act there is a
legal presumption that the cheque was issued for discharging an antecedent
liability and that presumption can be rebutted only by the person who drew the
cheque. The aforesaid presumption is in favour of the holder of cheque. It
is not mentioned in the section that the said presumption would operate only
against the drawer. The presumption available U/ s 139 can be rebutted by the
accused by adducing evidence. Therefore, the burden of proof is on the
accused and the evidence available on record will have to be appreciated by
bearing in mind the above fact rega rding burden of proof.

CHAPTER V

COMPOUNDING OF OFFENCE
AND COMPENSATORY ASPECT

Introduction

In plain legal parlance, compounding of an offence entails voluntary,

amicable and peaceful settlement between the victim and the accused whereby
they resolve their differences putting an end to the ensuing litigation.
According to the researcher , compounding is an act in which a complainant
agrees not to prosecute the accused in exchange for money or other
consideration. The net result is that the accused is relieved of the likely
punishment. Compounding involves parting with gratification in favour of the
victim but such gratification need not necessarily be of a financial character; it
87 | P a g e
is enough if it acts as an enticement to the victim to abstain from prosecution
and the victim, being gratified, desires to settle the dispute voluntarily
without any coercion or compulsion from any quarter.

However, there are some larger and complex issues which can be appropriately
addressed in the context of the topic under deliberation. It may be recalled
that Chapter XVII comprising Sections 138 to 142 was inserted into the Act
by the Banking, Public Financial Institutions and Negotiable Instruments
Laws (Amendment) Act, 1988 (66 of 1988). The main intent behind bringing
Section 138 into force was to indoctrinate faith in the efficacy of banking
processes and credibility in transacting business through negotiable
instruments 91 by minimizing the need for paper money. It was to augment the
degree of acceptability of cheques in settlement of liabilities by making the
drawer liable for penalties in case of bouncing of cheques due to insufficient
arrangements made by the drawer, with adequate safeguards to prevent
harassment of honest drawers. If the cheque is dishonoured for insufficiency
of funds in the drawer's account or if it exceeds the amount arranged to be paid
from that account, the drawer is to be punished with imprisonment for a term
which may extend to two years, or with fine which may extend to twice the
amount of the cheque, or with both. It may be noted that when the above
penal provision was inserted in the statute in 1988, it carried the provision
for imprisonment up to one year, which was revised to two years following
the amendment in the Act in 2002. It is thus quite evident that the legislative
intent was to provide a strong criminal remedy in order to daunt the alarmingly
high incidence of dishonour of cheques. On one hand the possibility of
imprisonment up to two years provides a remedy of a punitive nature, the
provision for imposing a fine which may extent to twice the amount of the
cheque serves a deeper compensatory purpose. What must be borne in mind is
that the dishonour of a cheque can be best described as a regulatory offence
that has been put into the statute to serve the public interest in ensuring the
dependability of these instruments.

Need for Provision of Compounding of Offence

91
S.Krishnamurthi Aiyar, Law Relating To The Negotiable Instruments Act, at 12 (2012).

88 | P a g e
It cannot be lost sight of that the provision of a strong criminal remedy has
encouraged the institution of a large number of cases that are relatable to the
offence contemplated by Section 138 of the Act. So much so, that at present a
disproportionately gigantic number of cases involving the dishonour of
cheques is choking our criminal justice system, especially at the level of
Magisterial Cou rts. Mr. Goolam E. Vahanvati, Solicitor General Attorney-
General for India while appearing as amicus curiae in Damodar.S.Prabhu v.
Sayed Babalal H. referred to the facts herein as an illustration of how parties
involved in cheque bounce cases usually seek the compounding of the offence
at a very late stage. 92
The interests of justice would indeed be better served if parties resorted to
compounding as a method to resolve their disputes at an early stage instead
of engaging in protracted litigation before several forums, thereby causing
undue delay, expenditure and strain on part of the judicial system. This is
clearly a situation that is causing some concern, since Section 147 of the Act
does not prescribe as to what stage is appropriate for compounding the
offence and whether the same can be done at the instance of the complainant
or with the leave of the court. The learned Attorney General stressed on the
importance of using compounding as an expedient method to hasten the
disposal of cases. In this regard, the learned Attorney General proposed that
the Court should frame some guidelines to disincentives litigants from seeking
the compounding of the offence at an unduly late stage of litigation. In other
words, judicial directions have been sought to nudge litigants in cheque
bounce cases to opt for compounding during the early stages of litigation,
thereby bringing down the arrears.

1 Offence Under Section 138 is of Private Nature

A crime is essentially a wrong against the society and the State. Therefore, any
compromise between the accused person and the individual victim of the
crime should not absolve the accused from criminal responsibility. However,
where the offences are essentially of a private nature and relatively not quite
serious, the Code considers it expedient to recognize some of them as
compoundable offences and some others as compoundable only with the

92
Damodar.S.Prabhu v. Sayed Babalal H
89 | P a g e
permission of the court. Even before the insertion of Section 147 in the Act
some High Courts had permitted the compounding of the offence. In O. P.
Dholakia v. State of Haryana , a division bench of the Honourable Supreme
Court had permitted the compounding of the offence even though the
petitioner's conviction had been upheld by all the three designated forums.
After noting that the petitioner had already entered into a compromise with the
complainant, the bench had rejected the State's argument that this Court need
not interfere with the conviction and sentence since it was open to the parties
to enter into a compromise at an earlier stage and that they had not done so.
The bench had observed that taking into consideration the nature of the offence
in question and the fact that the complainant and the accused have already
entered into a compromise, it would be appropriate to grant permissio n in the
peculiar facts and circumstances of the case, to compound the offence. 93

Similar reliefs were granted in Sivasankaran v. State of Kerala & Anr. , Kishore Kumar v.
J.K. Corporation Ltd . and Sailesh Shyam Parsekar v. Baban , among other cases. 94

2 Insertion of Section 147 in the Act

As mentioned above, the Negotiable Instruments Act, 1881 was amended by the
Negotiable Instruments ( Amendment and Miscellaneous Provisions) Act,
2002 which inserted a specific provision, i. e. Section 147 to make the offences
under the Act compoundable. The Statement of Objects and Reasons attached to
the 2002 amendment is self- explanatory. It states that The Negotiable
Instruments Act, 1881 was amended by the Banking, Public Financial
Institutions and Negotiable Instruments Laws ( Amendment) Act, 1988 wherein
a new Chapter XVII was incorporated for penalties in case of dishonour of
cheques due to insufficiency of funds in the account of the drawer of the
cheque. These provisions were incorporated with a view to encourage the
culture of use of cheques and enhancing the credibility of the instrument. The
existing provisions in the Negotiable Instruments Act, 1881, namely, Sections
138 to 142 in Chapter XVII have been found deficient in dealing with
dishonour of cheques. Not only the punishment provided in the Act has proved
to be inadequate, the procedure prescribed for the courts to deal with such
matters has been found to be cumbersome. The courts are unable to dispose of

93
In O. P. Dholakia v. State of Haryana
94
Sivasankaran v. State of Kerala & Anr
90 | P a g e
such cases expeditiously in a time bound manner in view of the procedure
contained in the Act.
In order to address the deficiencies referred to above, Section 10 of the 2002
amendment inserted Sections 143 , 144, 145, 146 and 147 into the Act, which
deal with aspects such as the power of the Court to try cases summarily (
Section 143 ), Mode of service of summons (Section 144 ), Evidence on
affidavit ( Section 145 ), Bank's slip to be considered as prima facie evidence
of certain facts ( Section 146 ) and Offences under the Act to be compoundable
( Section 147 ). At present, we are of course concerned with Section 147 of the
Act, which reads as follows:- " 147. Offences to be compoundable. –
Notwithstanding anything contained in the Code of Criminal Procedure, 1973
(2 of 1974), every offence punishable under this Act shall be compoundable." 95

1 Non Obstante Clause

At this point, it would be apt to clarify that in view of the non - obstante clause,
the compounding of offences under the Negotiable Instruments Act, 1881 is
controlled by Section 147 and the scheme contemplated by Section 320 of the
Code of Criminal Procedure will not be applicable in the strict sense since
the latter is meant for the specified offences under the Indian Penal Code. So
far as the CrPC is concerned, Section 320 deals with offences which are
compoundable, either by the parties without the leave of the court or by the
parties but only with the leave of the Court. A table has been provided under
Section 320 (1 ) and (2) of the Code indicating various offences punishable
under IPC and the person by whom the offence may be compounded. The
offences mentioned therein can be grouped into two categories namely minor
and serious offences. In the case of serious offences compounding is
permissible by the victim only with the permission of court. High court or
court of Sessions exercising its revisional powers may allow compounding of
the offence in the manner as provided by that Section. However in the case of
offence under Section 138 of NI Act, the legislature thought it fit to permit
compounding without the leave of the court as generally dishonour of cheque
arises out of commercial transactions between private parties.
For this reason only Section 147 starts with a non obstante clause to

95
Section 147 OF Negotiable Instruments Act, 1881
91 | P a g e
bring it out of the purview of Section 320 of CrPC. Section 147 of the
Negotiable Instruments Act, 1881 is in the nature of an enabling provision
which provides for the compounding of offences prescribed under the same
Act, thereby serving as an exception to the general rule incorporated in sub-
Section (9) of Section 320 of the Cr PC which states that `No offence shall
be compounded except as provided by this Section'. A bare reading of this
provision would lead us to the inference that offences punishable under
laws other than the Indian Penal Code also cannot be compounded. However,
since Section 147 was inserted by way of an amendment to a special law, the
same will override the effect of Section 320(9) of the CrPC, especially keeping
in mind that Section 147 carries a non- obstante clause. 96
In Vinay Devanna Nayak v . Ryot Sewa Sahakari Bank Ltd ., it was examined
whether an offence punishable under Section 138 of the Act which is a special
law can be compounded. After taking note of a divergence of views in past
decisions, the Apex Court took the position that this provision is intended to
prevent dishonesty on the part of the drawer of negotiable instruments in
issuing cheques without sufficient funds or with a view to inducing the payee
or holder in due course to act upon it. It thus seeks to promote the efficacy
of bank operations and ensures credibility in transacting business through
cheques. In such matters, therefore, normally compounding of offences should
not be denied. Presumably, Parliament also realized this aspect and inserted
Section 147 by the Negotiable Instruments (Amendment and Miscellaneous
Provisions) Act, 2002 (Act 55 of 2002). 97
The compounding of the offence at later stages of litigation in cheque
bouncing cases has also been held to be permissible in a decision of the
Apex Court, reported as K. M. Ibrahim v. K.P. Mohammed & Anr., wherein
Kabir, J. has noted that as far as the non - obstante clause included in Section
147 of the 1881 Act is concerned, the 1881 Act being a special statute, the
provisions of Section 147 will have an overriding effect over the provisions of
the Code relating to compounding of offences. It is true that the application
under Section 147 of the Negotiable Instruments Act was made by the
parties after the proceedings had been concluded before the Appellate Forum.
However, Section 147 of the aforesaid Act does not bar the parties from
96
Section 320 (1 ) and (2) of the Code Criminal procedure
97
In Vinay Devanna Nayak v . Ryot Sewa Sahakari Bank Ltd
92 | P a g e
compounding an offence under Section 138 even at the appellate stage of the
proceedings. Accordingly, no reason is found to reject the application under
Section 147 of the aforesaid Act even in a p roceeding under Article 136 of the
Constitution. 98
It would also be pertinent to refer to the Apex Court's decision in R.
Rajeshwari v. H. N. Jagadish wherein S.B. Sinha, J. while referring to Section
147 of the Act observed that Negotiable Instruments Act is a special Act and
indisputably, the provisions of the Code of Criminal Procedure, 1973 would be
applicable to the proceedings pending before the courts for trial of offences
under the said Act. Stricto sensu, however, the table appended to Section 320
of the Code of Criminal Procedure is not attracted as the provisions mentioned
therein refer only to provisions of the Penal Code and none other.

Punishment Not a Means of Seeking Retribution

Unlike that for other forms of crime, the punishment here in so far as the
complainant is concerned is not a means of seeking retribution, but is more a
means to ensure payment of money. The complainant's interest lies primarily
in recovering the money rather than seeing the drawer of the cheque in jail.
The threat of jail is only a mode to ensure recovery. As against the accused who
is willing to undergo a jail term, there is little available as remedy for the
holder of the cheque. If we were to examine the number of complaints filed
which were compromised or settled before the final judgment on one side
and the cases which proceeded to judgment and conviction on the other, we
will find that the bulk was settled and only a miniscule number continued.
Thus it cannot be denied that with respect to the offence of dishonour of
cheques, it is the compensatory aspect of the remedy which should be given
precedence over the punitive facet. A majority of cheque bounce cases are
indeed being compromised or settled by way of compounding, albeit during
the later stages of litigation thereby contributing to undue delay in justice -
delivery and uncalled for pressure over the judicial system .

The trouble herein is with the tendency of litigants to opt for compounding at
a much belated stage as a means to put an end to their d ispute. Furthermore, it

98
R. Rajeshwari v. H. N. Jagadish
93 | P a g e
needs to be stressed upon unlike Section 320 of the CrPC, Section 147 of the
Negotiable Instruments Act lays down no clear - cut explicit guidance as to at
what stage of litigation compounding can or cannot be done and whether
compounding can be done at the instance of the complainant or with the leave
of the court. In the absence of statutory guidance, parties are choosing
compounding as a method of last resort instead of opting for it as soon as the
Magistrates take cognizance of the complaints. One explanation for such
behaviour could be that the accused persons are willing to take the chance of
progressing through the various stages 99 of litigation and then choose the
route of settlement only when no other route remains. While such behaviour
may be viewed as rational from the viewpoint of litigants, the hard facts are
that the undue delay in opting for compounding contributes to the arrears
pending before the courts at various levels. If the accused is willing to settle or
compromise by way of compounding of the offence at a later stage of
litigation, it is generally indicative of some merit in the complainant's case.
In such cases it would be desirable if parties choose compounding during the
earlier stages of litigation. If however, the accused has a valid defence such as
a mistake, forgery or coercion among other grounds, then the matter can be
litigated through the specified forums.
Whether Compounding can be Claimed as a Right?

99
Section 320 of the CrPC, Section 147 of the Negotiable Instruments Act
94 | P a g e
The next crucial question of academic as well as practical importance is as to
whether compounding can be claimed as a right? On a plain reading of
Section 147, a doubt may arise whether compounding is a right conferred on

the accused or such right is subject to consent of the complainant.

Compounding of an offence is not a unilateral one - sided act and thus cannot
be resorted to unless and until the aggrieved person gives his approval.
Compounding necessarily requires mutual agreement of the accused as well as
the aggrieved and thus no offence can be compounded solely on the behest of
the accused. The guidelines laid down in Damodar. S.Prabhu v. Sayed
Babalal H. suggest that „compounding‟ can/ may be allowed at various stages
of the trial after imposition of a certain percentage of costs upon the accused.
The word categorically used and emphasised upon in the said
guidelines is „compounding‟ and as already discussed above no offence can be
compounded without the assent of the complainant. It is no where laid down
that the complaint should be compulsorily quashed or the
proceedings should be necessarily terminated as and when the accused makes
an offer to pay the cheque amount.

As such, the said authority and guidelines cannot be applied to cases in

which the complainant is not willing to accept the cheque amount and under
no provision of law the complainant can be coerced by the court to accept the
tender and withdraw his case. Needless to say that the Magistracy is not
bestowed with any express, implied or inherent powers to quash the proce
edings in any eventuality. 100

This issue has come up for consideration before Delhi High Court in the
22
case of Ranjita Mittal & Ors. v. State of Delhi . In this case the accused
filed a petition u/s 482 of the Code before the High Court for quashing the
proceedings of lower court whereby he had been convicted. The lower court
had declined the petitioner‟ s prayer for compounding of the offence even
though he had tendered the amount of the cheque because the complainant was
not willing to give his consent for effecting any compromise as the accused
was liable to pay more money than the tendered amount. The Delhi High
Court while relying on para 5 of judgment in Hitek Industries Ltd. & Ors. v .

100
in Damodar. S.Prabhu v. Sayed Babalal H
95 | P a g e
State of Delhi & Anr 23
, upheld the learned trial court‟s decision convict ing
the accused by citing the reason that the word compromise itself signifies
an agreement between the two parties to compound the offence. If the parties
do not agree to compound the offence, the court has to proceed with the
complaint.

However, in an unreported decision dated 11.11.2010 rendered by Ranjan

Gogoi, J. of the Honble Punjab and Haryana High Court in Balbir Singh v. M/s
Aggarwal Mfg. Co. a contrary view has been expressed in as much as where the
accused is ready and willing to pay the amount of the cheque in question, the
insistence of the complainant for an adjudication on merits by refusing to
accept the amount, itself, would amount to an abuse of the process of Court. 101

In Patri Mahesh v . State of Andhra Pradesh and another the aspect of consent
of the complainant again cropped up for consideration. It was argued that
under Section 147 of the Act, every offence punishable under the Act shall be
compoundable 102 and therefore, once the petitioner/ accused expressed his
willingness to deposit the cheque amount, the case against him shall be
withdrawn irrespective of the fact whether the complainant consented for i t or
not. In a way, his contention was that consent of the complainant is irrelevant
for compounding the offence as soon as the petitioner /accused is prepared to
deposit the cheque amount. It was also contended that the procedure
contemplated under Section 320 of Criminal Procedure Code for
compounding offences cannot be adopted to the offences punishable under
Section 138 of the Act. In support of above contentions, reliance was placed on
the judgment of Supreme Court in Damodar S. Prabhu v. Sayed Babalal H . Per
contra; learned counsel appearing for the respondent- complainant submitted
that the consent of the complainant is essential for compounding the offence
under Section 147 of the Act and therefore, the trial Court is justified in
dismissing the application filed by the petitioner/ accused to the extent of
withdrawing the complaint against him. It was also contended by him that
Section 147 does not contemplate the procedure for compounding offences
and therefore, the procedure contemplated under Section 320 Cr.P.C is
required to be adopted. In support of his submissions, reliance was placed on

101
In Patri Mahesh v . State of Andhra Pradesh and another
102
Balbir Singh v. M/s Aggarwal Mfg. Co.
96 | P a g e
the judgment of Supreme Court in JIK Industries Ltd. v . Amarlal V.Jumani
wherein it had been held that , Section 147 of the Negotiable Instruments Act
must be reasonably construed to mean that as a result of the said Section the
offences under Negotiable Instruments Act are made compoundable, but the
main principle of such compounding, namely, the consent of the person
aggrieved or the person injured or the complainant cannot be whisked away
nor can the same be substituted by virtue of Section 147 of Negotiable
Instruments Act. 103

Ambit of Section 357 of Code of Criminal Procedure

The power of awarding compensation to the complainant has been dealt in

two parts in section 357 of Cr.P.C. When sentence of fine is imposed, the
trial court as well as the appellate court can order the whole or any part of the
fine recovered to be paid by way of compensation if any loss or injury was
caused by the offence, by virtue of section 357 (1 ) of the Code. Section 357(
3) of Cr.P.C provides that when a Court imposes a sentence of which fine
does not form a part, the court may, when passing judgment ordered the
accused person to pay, by way of compensation, such amount as may be
specified in the order to the person who has suffered any loss or injury by
reason of the act for which the accused person has been so sentenced. This
sub- section has been introduced in order to fill up the lacuna in sections
545 and 546 of the old Cr.P.C under which there was no provision to
compensate an injured person even in deserving cases, unless fine was
imposed as a substantive sentence and the compensation could be only to the
extent of the amount of fine. This new provision applies to cases where no fine
is imposed as a “part of the sentence”. This is borne out from the words “ of
which fine does not form a part”. If the fine has been imposed as sentence or
part of the sentence, the compensation ca n be awarded under sub- section ( 1)
to the extent of the amount of fine only whereas Sub- section ( 3) can be
invoked upto an unlimited extent when fine does not form a part of the
sentence.

There is a clear distinction between clause (a) and clause ( b) of section 357 of the Code.

103
Section 357 of Code of Criminal Procedure
97 | P a g e
Under clause (a) the Magistrate can order the whole or in part of the fine recovered to be
applied in defraying expenses properly incurred in the prosecution. Any expenses
which are not so incurred cannot be awarded under clause ( a). Again it should
be clearly stated in the order the fine which is for defraying the expenses
incurred in the prosecution and the amount which is for making compensation
for the injury or loss caused by dishonour of the cheque. In other words,
when fine is apportioned under two heads, the amount applicable for each head
should be clearly spelled out in the order. 104

A bare reading of section 357 Cr.P.C. amply indicates that while imposing
sentence, the court has power to levy fine as provided for specifically under
sub- sections (1) and (2) thereof which can include any compensation
towards any loss or injury, etc., as enunciated under sub-clause ( b) of sub-
section( 1) of section 357 of Cr.P.C. whereas sub- section (3 ) on the face of it
stands on i ts own and confers powers to impose compensation and it also
further specifically states to the effect that the same is not conforming part of
any fine. Therefore, the expression compensation has been used in two
different places namely sub-clause (b) of sub-section ( 1) and sub-section ( 3)
of the aforesaid provision. Both such expressions are totally in a different
context and the assessment thereof also necessarily has to be on varied
conditions.

Therefore, it necessarily follows that expression compensation used in two

different places does not run on similar lines but almost parallel namely to say
that the fine as contemplated under sub -sections( 1) and (2) of section 357 of
Cr.P.C. may include compensation in a different context but the compensation
as provided for under sub -section (3), would not take or form part of the fine
as the legislature has clearly and expressly denoted. Therefore, the
compensation as awarded towards sentence under sub-section ( 3) would not
squarely take for the purpose of any benefit as sought to be conferred under sub
-section ( 2) thereof. It is only the fine amount, which may also include
compensation as a part thereof whenever it is awarded which automatically
gets stayed or for any such immunity in making payment thereof during
pendency of the appeal. However, that itself would not include the
compensation, which has been awarded totally under different contexts as

104
Section 357 of Code of Criminal Procedure
98 | P a g e
provided under sub -section ( 3) thereof. Having regard to the aforesaid object
as enunciated by the Apex Court, necessarily it connotes that there is sea -
difference between the different natures of compensation as contemplated
under both sub - section (1 ) and sub-section ( 3) of the aforesaid provision.

3 Recovery of Fine and Compensation

It is easier to recover fine imposed by the Magistrate by the machineries of the

criminal court. Execution of a decree passed by civil court under the
provisions of Order 21 of CPC is a more time consuming ordeal. The
provisions relating to levy of fine are to be found in sections 421 – 424 of
the Cr PC. The compensation can be recovered by issue of warrant of
attachment and sale of any movable property belonging to the convict or by
issue of warrant authorizing the Collector to realize the amount as arrears of
land revenue from the movable or immovable property, or both, of the
defaulter.

4 Moral Turpitude

As far as the question of moral turpitude is concerned, opined that

dishonour of cheque per se is not an offence. Failure to make payment within
fifteen days from the date of receipt of the notice constitutes the offence.
Conviction for such an offence will not involve moral turpitude unless the
mens rea of the accused looms large. In other words, when the accused in
order to cheat or deprive the payee or holder in due course takes all sorts of
frivolous pleas, his conviction under section 138 may then involve moral
turpitude. 105

So it is not the conviction and sentence under section 138 of the Act but
the facts and circumstances leading to that conviction are material in
judging the issue. The question whether the act of issuing a cheque
without sufficient funds will involve moral turpitude has to be
considered de hors the element of cheating. Payment of the cheque amount
even after conviction and sentence by the convict is likely to speak against
105
K.N.C. Pillai, R.V. Kelkar's Criminal Procedure, at 444 (2008).

99 | P a g e
the charge of moral turpitude.

5 Order of Compensation – Mandatory in Cases of Conviction

In this regard it would be apposite to revert to the observations of the
Honble Supreme Court in the landmark judgment R.Vijayan v. Baby. It has
been held herein that where the accused is convicted, Court “should”
invariably in all cases (unless there are special reasons) levy the fine upto
twice the amount of cheque and simple interest as quantum of loss and
direct payment of such amount as compensation . It has been further held
that after convicting the accused if one court grants compensation in a
case and the other Court does not grant compensation the inconsistency
though perfectly legal, but will give rise to certain amount of uncertainty
in the minds of litigants about the functioning of courts. Uniformity and
consistency in deciding similar cases by different courts, not only
increase the credibility of cheque as a negotiable instrument, but also
the credibility of Courts of justice. 106

This judgment provides another justification for imposing

compensation upon a convict under section 138 of the Act. It says that
Chapter XVII of the Act is an unique exercise which blurs t he dividing
line between civil and criminal jurisdictions - It provides a single
forum and single proceeding, for enforcement of criminal liabili ty ( for
dishonouring the cheque) and for enforcement of the civil liability ( for
realisation of the cheque amount) thereby obviating the need for the
creditor to move two different fora for relief.

.1 Can Fine as well as Compensation be Levied/ Awarded

Together?
This question has also been answered in R.Vijayan v . Baby. In this case, on
dishonour of cheque of Rs. 20, 000/- Accused was convicted and sentenced to
pay fine of Rs. 2,000/ - and to pay Rs. 20,000/- as compensation to
complainant. In appeal, High Court maintained the conviction of fine of Rs.
2000/ - but set the direction that payment of compensation could not co-
exist with imposition of fine. It was held that Award of compensation under
Section 357(3) Criminal Procedure Code can be awarded only where fine

106
in R.Vijayan v . Baby
100 | P a g e
does not form part of the sentence.
.2 Order of Sentence on Account of Default in Payment of
Compensation

It has been held in A.K. Vijaya Kumar v . R. Mohan that Court has power
under Section 357 Criminal Procedure Code to award compensation to victim.
This power is not ancillary to other sentences, but it is in addition thereto and
is intended to do something to reassure the victim that he or she is not
forgotten i n the criminal justice system. The order to pay compensation may
be enforced by awarding sentence in default. 107

It has also been held in K. A. Abbas H. S.A. v. Sabu Joseph & Anr. that
where Court is convicting the accused and directing the accused to pay
compensation, in default of payment of compensation, a default sentence can
be imposed. Contention of the accused that there can be no sentence of
imprisonment for default in payment of compensation under Section 357( 3)
not tenable. Sometimes the situation becomes such that there is no purpose is
served by keeping a person behind bars. Instead directing the accused to pay
an amount of compensation to the victim or affected party can ensu re
delivery of total justice. Therefore, this grant of compensation is sometimes
in lieu of sending a person behind bars or in addition to a very light
sentence of imprisonment. 108
Hence on default of payment of this compensation, there must be a just
recourse. Not imposing a sentence of imprisonment would mean allowing the
accused to get away without paying the compensation and imposing another
fine would be impractical as it would mean imposing a fine upon another
fine and therefore would not ensure proper enforcement of the order of
compensation. While passing an order under Section 357 (3 ), it is imperative
for the courts to look at the ability and the capacity of the accused to pay the
same amount as has been laid down by the cases above, otherwise the very
purpose of granting an order of compensation would stand defeated.
In the case of Vijayan v. Sadanandan K. and Anr., after noticing the
provision of Section 421 and 431 of Criminal Procedure Code, which dealt
with mode of recovery of fine and Section 64 of Indian Penal Code, which

107
A.K. Vijaya Kumar v . R. Mohan
108
held in K. A. Abbas H. S.A. v. Sabu Joseph & Anr
101 | P a g e
empowered the courts to provide for a sentence of imprisonment on default
of payment of fine, the Court stated that the provisions of Sections 357(3)
and 431 Criminal Procedure Code, when read with Section 64 Indian Penal
Code, empower the Court, while making an order for payment of
compensation, to also include a default sentence in case of non - payment of
the same. If recourse can only be had to Section 421 Criminal Procedure Code
for enforcing the same, the very object of Sub- section ( 3) of Section 357
would be frustrated and the relief contemplated therein would be rendered
somewhat illusory. 109
.3 Whether Imposition of a Jail Sentence is Necessary Before Awarding
Compensation?
This question came up for consideration befo re the Honble Supreme Court in
Kaushalya Devi Massand v. Roopkishore. It has been held that in case of
dishonour of cheque Court can impose fine payable as compensation to
complainant without awarding jail sentence. Imposition of fine payable as
compensat ion to complainant was sufficient to meet ends of justice. An
offence under Section 138 of the Negotiable Instruments Act, is almost in the
nature of a civil wrong which has been given criminal overtones; gravity of a
complaint under the Negotiable Instruments Act cannot be equated with an
offence under the provisions of the Indian Penal Code or other criminal
110
offences.
.4 Limit of Compensation
The Court under Section 375( 3) Criminal Procedure Code can award
unlimited amount of compensation. No draw er of the cheque can be allowed
to take dishonour of the cheque issued by him light- heartedly. Under Section
357(3) Criminal Procedure Code power to award compensation can be
invoked by appellate, revisional court without remitting the matter to trial
Magi strate.
It has been further held in summons case, no separate opportunity of
hearing is required to be given to the accused on the question of sentence.
Of course, while fixing the amount of such compensation the Magistrate has to consider
what would be the reasonable amount of compensation payable to the complainant.

6 whether a Judicial Magistrate can Impose Fine More than Rs.

109
Vijayan v. Sadanandan K. and Anr
110
Kaushalya Devi Massand v. Roopkishore
102 | P a g e
5000/-?
According to Section 142(c) of the Act, the offence under Section 138 is
triable by the Judicial Magistrate Ist Cla ss. Section 143 of the Act further
provides that all the offences under Chapter XVII shall be tried summarily in
accordance with the provisions of Sections 262 to 265 of the Code. Provided
that in case of any conviction in a summary trial under this section, it shall be
lawful for the Magistrate to pass a sentence of imprisonment for a term not
exceeding one year and an amount of fine exceeding five thousand rupees.
Under Section 138 of the Act, if an accused is convicted, he can be punished
"with imprisonment for a term which may be extended to two years, or with
fine which may extend to twice the amount of the cheque, or with both". But
the Judicial Magistrate Ist Class cannot impose fine beyond the limitation
54
prescribed in the Code of Criminal Procedure , which reads thus:
" The Court of a Magistrate of the first class may pass a sentence of
imprisonment for a term not exceeding three years, or of fine not exceeding ten
thousand rupees, or of both." 111

It is submitted that even though Section 138 of the Act provides

punishment with imprisonment for a term which may extend to two
years, or with fine which may extend to twice the amount of the
cheque, or with both, the Magistrate in a summary trial cannot impose
a sentence beyond one year and a fine beyond Rs. F ive thousand. Even
if a Magistrate orders the payment of fine to the complainant from out
of the fine realized, the complainant will be loser when the cheque
amount exceeded the said l imit. In such a case, a complainant will get
only the maximum amount of Rs. 5 ,000/-. In such a situation, the
Magistrate can provide solace to alleviate grievance of the complainant
by resorting to Section 357 (3 ) of the Code. 112

In K. Bhaskaran v. Sankaran Vaidhyan Balan the High Court

reversed the acquittal convicted the accused under section 138 of the
Act and imposed a sentence of imprisonment for six months and fine of
Rs. one lac on him. Section 138 provides punishment with imprisonment
for a term which may extend to one year or with fine which may extend
to twice the amount of cheque or with both. The Supreme Court held that

111
Criminal appeals no. 1731, 1732 and 1733 of 2017 decided on 05.10.2017.
112
In K. Bhaskaran v. Sankaran Vaidhyan Balan
103 | P a g e
 the court cannot obviate the jurisdictional limit prescribed in section
386 of the Code which provides that the Appellate Court shall not inflict
greater punishment for the offence which in its opinion the accused has
committed, than might have been inflicted for that offence by the Court
passing the order or sentence under appeal Section 29(2 ) of the Code
lays down that the court of a Magistrate of the first class may pass a
sentence of imprisonment for a term not exceeding three years or of fine
not exceeding five thousand rupees, or of both. The trial in that case was
held before a judicial Magistrate of the first class and he could not have
imposed a fine exceeding Rs. 5 ,000 and, therefore, t he High Court while
convicting the accused in the same case could not impose a sentence of
fine exceeding the said limit. 113

It has been further held by the Supreme Court that the Magistrate in
such cases can alleviate the grievance of the complaint by making resort
to section 357( 3) of the Code. After referring to the earlier decision in
Hari Singh v. Sukhbir Singh , it has been observed that there is need
for making l iberal use of this provision. No limit is mentioned in the sub -
section and, therefore, a Magistrate can award any sum as compensation.
Of course, while fixing the amount of such compensation the Magistrate
has to consider what would be the reasonable amount of compensation
payable to the complainant. The Supreme Court upholding the conviction
for the offence under section 138 of the Act set aside the sentence for
enabling the Trial Court to pass orders “on the question of sentence and
the compensation, of any payable”, after hearing the prosecution and the
accused on these aspects.

Award of Appropriate Interest by Criminal Court

The expression “such amount as may be specified” appearing in section 357

(3) of Cr.P.C. cannot certainly suggest or convey that direction for payment of
interest at the specified rate on a specified amount will cease to be an amount
“as may be” specified for the purpose of section 357 (3 ) of Cr.P.C. That 114
would continue to be an amount specified, though the amount payable as such
in figures is not specified and only the basis on which such amount is to be

113
in Hari Singh v. Sukhbir Singh
114
section 357 (3) of Cr.P.C.
104 | P a g e
ascertai ned is specified. There is no uncertainty whatsoever in the impugned
direction. The amount due on any given date can be ascertained specifically.
Therefore the said expression “ such amount as may be specified” appearing in
section 357(3) of Cr.P.C. cannot lead the court to the conclusion that a
direction to pay interest is impermissible.
Merely because interest at the rate of 18% per annum can be claimed under
section 80 , it is not essential that a Court much less a Criminal Court which
need only ensure j ust compensation should direct payment at that rate. When
the matter goes to a Civil Court, for the pre-litigation period, interest at the
rate of specified in section 80 may be payable. But that does not necessarily
oblige the Criminal Court to direct payment of interest at the full rate of
interest mentioned in section 80 . The Court can ascertain the loss which the
complainant would suffer/ has suffered on account of the delay in payment and
appropriate rate of interest can be directed to be paid, consci ous of the
stipulation under section 80, consistent with the rate of interest payable be
the nationalised banks. 115
The Honble Kerala High Court while interpreting section 80 of the
Negotiable Instruments Act held that the criminal court while imposing
compensation can also direct payment of interest on it. It is also held that
though section 80 of the Act prescribes rate of interest of 18 % per annum but
it is not necessary for criminal court to award this rate and the same can be
reduced also. In this case, the order of the trial court for awarding interest
on the compensation amount from the date of cheque till realisation was
upheld but the rate of interest was reduced from 12 % to 8% per annum.

Compensation can be Imposed Upon Company

Technically, the powers under section 357(3) can be invoked only when the
courts choose to impose a sentence of which fine does not form a part.
When one of the accused is a company, no substantive sentence of
imprisonment can be imposed on the company. But following the rationale in
Standard Chartered Bank v. Directorate of Enforcement, the mandate of
section 357( 3) can certainly be read down as no sentence of imprisonment
can be imposed on the company a non-natural fictional person. What is

115
section 357 (3) of Cr.P.C.
105 | P a g e
possible alone can be inv oked on the company under section 357(3), Cr.P.C.
The powers under section 357(3 ) can hence be invoked against a non -natural
person even when imposition of a substantive sentence of imprisonment is
impossible. The same can be recovered under section 421 re ad with section
431, Cr.P.C.
Recovery of Compensation Gets Precedence over Fine
When compensation is awarded under section 357 of Cr. P.C either as part of
the fine or independently, the recovery of the same gets precedence over
the recovery of fine t o be credited to the government. Where compensation
forms part of fine, the fine or portion of the fine has to be first applied for the
payment of compensation under section 357 of Cr.P.C., wherever there is
an award of compensation and for the remaining amount of fine, if not paid or
recovered, the accused has to be sent to prison to undergo the default sentence
apart from the court taking steps to recover the fine. 116

Recovery of Compensation/ Fine Despite Sentence in Default Undergone

Under the proviso to section 421(1) of Cr.P.C. the power of the Court to
recover the amount of compensation by attachment and sale of property of the
accused does not cease merely because the accused has undergone the whole of
the imprisonment in default of payment of fine by then.

116
S.Krishnamurthi Aiyar, Law Relating To The Negotiable Instruments Act, at 646 (2012).
106 | P a g e
 CHAPTER VI

CONCEPT OF VICARIOUS LIABILITY

Since partnership firms and companies occupy a major space in the mercantile
world, so specific provisions with regard to prosecution of such entities have
been incorporated in the Act. Explanation ‘A’ to section 141 of Negotiable
Instruments Act defines the company for the purpose of this Act according to
which company means anybody corporate including a firm or other association
of individuals. According to section 142 ( a), no court shall take cognizance of
the offence under section 138 except from a complaint made by the payee.
There is no express or implied provision in the Act as to in what manner the
company is to be represented in preferring a complaint for alleged refraction or
violation of provisions under section 138 of the Act. However, the dictates of
common sense, practical wisdom, prudence and experience impels the court in
such a situation to enable the company to present a complaint before the
court represented by some person connected with the affairs of the company.
The person so connected with the affairs of the company may be either its
manager, partner, managing partner or director or outsider authorized by the
company. Only by making, such a construction and interpretation of the
provisions of the said sections, the provisions of the Act can be made to
work and life thereby given, having teeth for the enforcement of the provisions
or any other interpretation given would have the effect of making no sense of
those provisions. 117

Introduction
Section 141 dealing with offences by companies, provides if the person committing an
offence under section 138 is a company, every person who was incharge of and responsible
to the company for the conduct, of the business of the company as well as the company
shall be deemed to be guilty of the offence, and therefore, this section 141
makes the company as well as all those persons incharge liable to be proceeded

117
Sharma and Mago, The Negotiable Instruments Act, 1881, at 742 (2005).

107 | P a g e
against and punished accordingly. It would not be sufficient to say that such a
person was director of a company, but, if it is stated in the complaint and if
it is alleged against a particular accused that he was incharge of the company
and was responsible for conduct of business of the company, it would be
sufficient for taking cognizance against such a accused. Whether he had ceased
to be such a person or whether he was never associated with the company in
such a capacity would be questions of fact which would have to be decided
during the trial.

More often it is common that some of the partners o f a firm may not even be
knowing of what if going on day to day in the firm. There may be partners,
better known as sleeping partners who are not required to take part in the
business of the firm. There may be ladies and minors who were admitted for
the be nefit of partnership. They may not know anything about the business of
the firm. It would be a travesty of justice to prosecute all partners and ask
them to prove under the provisions to sub-section ( 1) that the offence was
committed without their knowledge. It is significant to note that the obligation
for the accused to prove under the proviso that the offence took place without
his knowledge or that he exercised all due diligence to prevent such offence
arises only when the prosecution establishes that t he requisite condition
mentioned in sub- section (1) is established. The requisite condition is that the
partner was responsible for carrying on the business and was during the
relevant time incharge of the business. In the absence of any such proof, no
partner could be convicted. 118

Every director is not liable for the offence committed by a company as it is

clear that no person could be prosecuted in the absence of a specific, clear
and unambiguous assertion in the complaint against such persons impleaded as
accused that they were incharge of and were responsible to the company for the
conduct of the business at the material time when the offence was committed
by the company.

The complainant is bound to share that information in the complaint. The

118
Sharma and Mago, The Negotiable Instruments Act, 1881, at 742 (2005).

108 | P a g e
contents of the complaint are required to be meticulously scrutinized by the
Magistrate before taking the same on file. Further proceedings in a
complaint where no such averment and clear allegation has been made would
be an abuse of judicial process. The requirement of specific, clear and
unambiguous allegation in the complaint before the same is taken on file by a
Magistrate cannot be relaxed. No person could be allowe to be prosecuted
on imaginary grounds.

Offences By Companies

Section 141 of the Act deals with offences by companies. It reads as follows:-"
141. Offences by companies.
If the person committing an offence under Section 138 is a company, every
person who, at the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of the company, as
well as the company, shall be deemed to be guilty of the offence and shall be
liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any person
liable to punishment if he proves that the offence was committed without his
knowledge, or that he had exercised all due diligence to prevent the
commission of such offence:
Provided further that where a person is nominated as a Director of a company
by virtue of his holding any office or employment in the Central Government
or State Government or a financial corporation owned or controlled by the
Central Government or the State Government, as the case may be, he shall not
be liable for prosecution under this Chapter. 119
Notwithstanding anything contained in sub-section (1 ), where any offence
under this Act has been committed by a company and it is proved that the
offence has been committed with the consent or connivance of, or is
attributable to, any neglect on the part of, any Director, Manager, Secretary
or other officer of the company, such Director, Manager, Secretary or other
officer shall also be deemed to be guilty of that offence and shall be liable to
be proceeded against and punished accordingly.

119
Sharma and Mago, The Negotiable Instruments Act, 1881, at 742 (2005).

109 | P a g e
Explanation. - For the purposes of this section-
(a) 'company' means anybody corporate and includes a firm or other association of
individuals; and
(b) 'director', in relation to a firm, means a partner in the f irm."
On a perusal of the aforesaid provision, it is clear as crystal that if the person
who commits an offence under Section 138 of the Act is a company, the
company as well as other person in charge of or responsible to the company for
the conduct of the business of the company at the time of commission of the
offence is deemed to be guilty of the offence. Thus, it creates a constructive
liability on the persons responsible for the conduct of the business of the
company.
In Halsbury's Laws of England, it has been laid down that in general, a
corporation is in the same position in relation to criminal liability as a natural
person and may be convicted of common law and statutory offences including
those requiring mens rea. While dealing with l iability in respect of criminal
prosecution, it has been stated that a corporation shall be l iable for criminal
prosecution for crimes punishable with fine; in certain jurisdictions, a
corporation cannot be convicted except as specifically provided by statute.
In H.L. Bolton (Engineering) Co. Ltd. v . T.J. Graham & Sons Ltd., Lord
Denning, while dealing with the liability of a company, in his inimitable
style, has expressed that a company may in many ways be likened to a
human body. It has a brain and nerve centre which controls what it does. It
also has hands which hold the tools and act in accordance with directions from
the centre. Some of the people in the company are mere servants and agents
who are nothing more than hands to do the work and cannot be said to
represent the mind or will. Others are directors and managers who represent
the directing mind and will of the company, and control what it does. 120 The
state of mind of these managers is the state of mind of the company and is
treated by the law as such. In certain cases, where the law requires person al
fault as a condition of liability in tort, the fault of the manager will be the
personal fault of the company. The learned Law Lord referred to Lord 121
Haldane's speech in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co.
Ltd. , Elaborating further, he has observed that in criminal law, in cases where

120
In H.L. Bolton (Engineering) Co. Ltd. v . T.J. Graham & Sons Ltd.,
121
Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd
110 | P a g e
the law requires a guilty mind as a condition of a criminal offence, the guilty
mind of the directors or the managers will render the company itself guilty.

It may be appropriate at this stage to notice th e observations made by Mac

Naghten, J. in Director of Public Prosecutions v. Kent and Sussex
Contractors Ltd. , as reproduced thus : " A body corporate is a " person" to
whom, amongst the various attributes it may have, there should be imputed the
attribute of a mind capable of knowing and forming an intention - indeed it is
much too late company/ body corporate i. e. the person or group of persons that
guide the business of the company, would be imputed to the corporation."

There is no dispute that a company is liable to be prosecuted and punished

for criminal offences. Although there are earlier authorities to the fact that the
corporation cannot commit a crime, the generally accepted modern rule is that
a corporation may be subject to indictment and other criminal process although
the criminal act may be committed through its agent. It has also been observed
that there is no immunity to the companies from prosecution merely because
the prosecution is in respect of offences for which the punishment is mandatory
imprisonment and fine. 122

Company to be Arrayed as an Accused

At one point of time, an issue had arisen before the Apex Court, as to
whether a complaint could be held to be maintainable without making the
company a party. The said controversy has been put to rest by a three-Judge
Bench decision in Aneeta Hada v. Godfather Travels and Tours Private
Limited wherein it has been held that when the company can be prosecuted,
then only the persons mentioned in the other categories could be vicariously
liable for the offence subject to the averments in the petition and proof
thereof. It has been further held therein that there cannot be any vicarious
liability unless there is a prosecution against the company. 123

6.3. 1 Company is a Separate Entity

Company, although a juristic person, is a separate entity. Directors may come

122
Mac Naghten, J. in Director of Public Prosecutions v. Kent and Sussex Contractors Ltd
123
Aneeta Hada v. Godfather Travels and Tours Private Limited
111 | P a g e
and go. The company remains. It has its own reputation and standing in the
market which is required to be maintained. Nobody, without any authority of
law, can sentence it or find it guilty of commission of offence. Before
recording a finding that it is guilty of commission of a serious offence, it may
be heard. The Director who was in charge of the company at one point of time
may have no interest in the company. He may not even defend the company.
He need not even continue to be its Direct or. He may have his own score to
settle in view of change in management of the company. In a situation of that
nature, the company would for all intent and purport would stand convicted,
although, it was not an accused and, thus, had no opportunity to defend
itself.
Any person accused of commission of an offence, whether natural or
juristic, has some rights. If it is to be found guilty of commission of an offence
on the basis whereof its Directors are held liable, the procedures laid down in
the Code of Criminal Procedure must be followed. In determining such an
issue all relevant aspects of the matter must be kept in mind. The ground
realities cannot be lost sight of. Accused persons are being convicted for
commission of an offence under Section 138 of the Act inter alia on drawing
statutory presumptions.

Company Has a Right to be Heard

Various provisions contained in the Act lean in favour of a drawer of the

cheque or the holder thereof and against the accused. Sections 20, 118 ( c), 139
and 140 of the Act are some such provisions. The Act is a penal statute. Unlike
offences under the general law it provides for reverse burden. The onus of
proof shifts to the accused if some foundational facts are established. It is,
therefore, in interpreting a statute of this nature difficult to conceive that it
would be legally permissible to hold a company, the prime offender, l iable
for commission of an offence although it does not get an opportunity to defend
i tself. It is against all principles of fairness and justice. It is opposed to the
Rule of Law. No statute in view of our Constitutional scheme can be construed
in such a manner so as to refuse an opportunity of being heard to a person. It
would not only offend a common- sense, it may be held to be unconstitutional.

In Aneeta Hada's case, the court referred to Anil Hada v . Indian Acrylic Ltd .,
112 | P a g e
and R. Rajgopal v . S.S. Venkat , distinguished the decision in Anil Hada and
opined that the issue decided in the said case is to be understood in the
factual matrix obtaining therein as the Company could not have been
prosecuted, it being under liquidation. The observations to the effect that the
Company need not be prosecuted against was regarded as obiter dicta and not
the ratio decidendi. After stating so, it was observed that i t is one thing to say
that the complaint petition proceeded against the accused persons on the
premise that the company had not committed the offence but the accused did,
but it is another thing to say that although the company was the princ ipal
offender, it need not be made an accused at all. 124

Prosecution of the company is a sine qua non for prosecution of the other
persons who fall within the second and third categories of the candidates, viz.,
everyone who was in - charge and was responsible for the business of the
company and any other person who was a director or managing director or
secretary or officer of the company with whose connivance or due to whose
neglect the company had committed the offence.

Specific Averments to be Raised in the Complaint

The most important question which requires to be discerned in the context of

section 141 of the Act is whether for purposes of Section of the Negotiable
Instruments Act, 1881, it is sufficient if the substance of the allegation read
as a whole fulfil l the requirements of the said section and it is not necessary
to specifically state in the complaint that the person accused was in charge of,
or responsible for, the conduct of the business of the company. In this regard
the decisions rendered by the various High Courts as well as t he Supreme
Court are unanimous to the effect that it is necessary to specifically aver in a
complaint under Section 141 that at the time the offence was committed, the
person accused was in charge of, and responsible for the conduct of
business of the company. This averment is an essential requirement of Section
141 and has to be made in a complaint. Without this averment being made in a
complaint, the requirements of Section 141 cannot be said to be satisfied.

A liability under Section 141 of the Act is sought to be fastened vicariously on

a person connected with a company, the principal accused being the company

124
Anil Hada v . Indian Acrylic Ltd .,and R. Rajgopal v . S.S. Venkat
113 | P a g e
itself. It is a departure from the rule in criminal law against vicarious liability.
A clear case should be spelled out in the complaint against the person sought
to be made liable. Section 141 of the Act contains the requirements for
making a person liable under the said provision. That the respondent falls
within the parameters of Section 141 has to be spelled out. A complaint has to
be examined by the Magistrate in the first instance on the basis of averments
contained therein. If the Magistrate is satisfied that there are averments which
bring the case within Section 141, he would issue the process. We have seen
that merely being described as a director in a company is not sufficient to
satisfy the requirement of Section 141. Even a non-director can be liable
under Section 141 of the Act. The averments in the complaint would also serve
the purpose that the person sought to be made liable would kno w what is the
case which is alleged against him. This will enable him to meet the case at
the trial. 125

Three-Judge Bench in S.M.S Pharmaceuticals Ltd. v . Neeta Bhalla and

another referred to Section 138 and 141 of the Act, Sections 203 and 204 of
Cr.P.C. and observed that a complaint must contain material to enable the
Magistrate to make up his mind for issuing process and if this were not the
requirement, consequences would be far-reaching. If a Magistrate has to issue
process in every case, the burden of work before the Magistrate as well as
the harassment caused to the respondents to whom process has to be issued
would be tremendous. It has been observed therein that Section 204 of the
Cr.P.C. commences with the words "if in the opinion of the Magistrate taking
cognizance of an offence there is sufficient ground for proceeding" and that
apart, the words "sufficient ground for proceeding" again suggest that ground
should be made out in the complaint for proceeding against the respondent.
The three -Judge Bench has ruled that it is settled law that at the time of
issuing of the process, the Magistrate is required to see only the allegations in
the complaint and where the allegations in the complaint or the charge - sheet
do not constitute an offence against a person, the complaint is liable to be
dismissed.

As far as the officers responsible for conducting the affairs of the company
are concerned, the Court referred to various provisions of the Companies Act,

125
S.M.S Pharmaceuticals Ltd. v . Neeta Bhalla and another
114 | P a g e
1956 and analysed Section 141 of the Act to lay down as follows:-

" What is required is that the persons who are sought to be made criminally l
iable under Section 141 should be, at the time the offence was committed, in
charge of and responsible to the company for the conduct of the business of
the company. Every person connected with the company shall not fall within
the ambit of the provision. It is only those persons who were in charge of and
responsible for the conduct of business of the company at the time of
commission of an offence, who will be liab le for criminal action. It follows
from this that if a director of a company who was not in charge of and was not
responsible for the conduct of the business of the company at the relevant
time, will not be liable under the provision. The liability arises from being in
charge of and responsible for the conduct of business of the company at the
relevant time when the offence was committed and not on the basis of merely
holding a designation or office in a company. Conversely, a person not holding
any office or designation in a company may be liable if he satisfies the main
requirement of being in charge of and responsible for the conduct of business
of a company at the relevant time. Liability depends on the role one plays in
the affairs of a company and not on designation or status. If being a director
or manager or secretary was enough to cast criminal liability, the section
would have said so. Instead of " every person" the section would have said "
every director, manager or secretary in a company is liable"..., etc. The
legislature is aware that i t is a case of criminal l iability which means
serious consequences so far as the person sought to be made liable is
concerned. Therefore, only persons who can be said to be connected with the
commission of a crime at the relevant time have been subjected to action.”

Liability of Director on the Date of Offence

Further, the liability of a Director must be determined on the date on which

the offence is committed. Only because a Director was a party to a purported
resolution by itself does not lead to an inference that he was actively 126
associated with the management of the affairs of the Company. There may
be a large number of Directors but some of them may not associate themselves

126
Corpus Juris Secundum, Volume XIX, 1358.
(1956) 3 All E.R. 624.

115 | P a g e
in the management of the day - to- day affairs of the Company and, thus, are
not responsible for conduct of the business of the Company. The averments
must state that the person who is vicariously liable for commission of the
offence of the Company both was incharge of and was responsible for the
conduct of the business of the company. Requirements laid down therein must
be read conjointly and not disjunctively. When a legal fiction is raised, the
ingredients thereof must be satisfied.

The Honble Gujarat High Court in Urban Co-op Credit Society Borsad v. State
of Gujarat and another, wherein it has been categorically held that if a post
dated cheque was issued by an officer of the company who resigned before
the due date then he cannot be treated to be an officer responsible for the
manage ment of the company on the date on which the offence can be said to
have been committed.

Any person who negotiated the complainant to take loan could not be held
vicariously liable and it would not give rise to any inference that such
person was responsible for day- to-day affairs of the company. 127

Clear Statement of the Fact

This aspect of the matter has recently been considered by this Court in Sabitha
Ramamurthy and another v. R. B.S. Channabasavardhya , wherein it has been
held : " It may be true that it is not necessary for the complainant to specifically
reproduce the wordings of the section but what is required is a clear
statement of fact so as to enable the court to arrive at a prima facie opinion
that the accused are vicariously liable. Section 141 raises a legal fiction. By
reason of the said provision, a person although is not personally liable for
commission of such an offence would be vicariously liable therefor. Such
vicarious liability can be inferred so far as a company registered or
incorporated under the Companies Act, 1956 is concerned only if the requisite
statements, which are required to be averred in the complaint petition, are
made so as to make the accused therein vicariously liable for the offence
committed by the company. Before a person can be made vicariously liable,
strict compliance of the statutory requirements would be insisted." 128

127
Urban Co-op Credit Society Borsad v. State of Gujarat and another ,
128
Sabitha Ramamurthy and another v. R. B.S. Channabasavardhya
116 | P a g e
In Standard Chartered Bank v. State of Maharashtra , the position under
Section 141 of the Act has been summarised thus: If the accused is the
Managing Director or a Joint Managing Director, it is not necessary to make an
averment in the complaint that he is in charge of, and is responsible to the
company, for the conduct of the business of the company. It is sufficient if an
averment is made that the accused was the Managing Director or Joint
Managing Director at the relevant time. This is because the prefix "Managing"
to the word "Director" makes it clear that they were in charge of and are
responsible to the company, for the conduct of the business of the company.

In the case of a Director or an officer of the company who signed the cheque
on behalf of the company, there is no need to make a specific averment that
he was in charge of and was responsible to the company, for the conduct of the
business of the company or make any specific allegation about consent,
connivance or negligence. The very fact that the dishonoured cheque was
signed by him on behalf of the company, would give rise to responsibility
under sub-section ( 2) of Section 141. 129

In the case of a Director, secretary or manager [ as defined in Section 2(24) of

the Companies Act] or a person referred to in clauses (e) and ( f) of Section 5
of the Companies Act, an averment in the complaint that he was in charge of,
and was responsible to the company, for the conduct of the business of the
company is necessary to bring the case under Section 141( 1) of the Act. No
further averment would be necessary in the complaint, though some
particulars will be desirable. They can also be made liable under Section 141(
2) by making necessary averments relating to consent and connivance or
negligence, in the complaint, to bring the matter under that sub-section.

Other officers of a company cannot be made liable under sub- section ( 1) of

Section 141. Other officers of a company can be made liable only under sub -
section (2 ) of Section 141, by averring in the complaint their position and
duties in the company and their role in regard to the issue and dishonour of the
cheque, disclosing consent, connivance or negligence.

Effect of Absence of Necessary Averments

Even, if it is held that specific averments are necessary, whether in the

129
Standard Chartered Bank v. State of Maharashtra
117 | P a g e
absence of such averments the signatory of the cheque and or the managing
directors or joint managing director who admittedly would be in charge of the
company and responsible to the company for conduct of its business could
be proceeded against? The answer to this question has to be in the affirmative.
The question notes that the managing director or joint managing director
would be admittedly in charge of the company and responsible to the
company for the conduct of its business. When that is so, holders of such
positions in a company become liable under Section 141 of the Act. By
virtue of the office they hold as managing director or joint managing
director, these persons are in charge of and responsible for the conduct of
business of the company. Therefore, they get covered under Section 141. So
far as the signatory of a cheque which is dishonoured is concerned, he is
clearly responsible for the incriminating act and will be covered under sub-
section (2 ) of Section 141.

No Deemed Liability of Director

In this perspective it may also required to be discerned as to whether a director

of a company would be deemed to be i n charge of, and responsible to, the
company for conduct of the business of the company and, therefore, deemed to
be guilty of the offence unless he proves to the contrary. The answer to the
question posed above has to be in the negative. Merely being a director of a
company is not sufficient to make the person liable under Section 141 of the
Act. A director in a company cannot be deemed to be in charge of and
responsible to the company for the conduct of its business. The requirement of
Section 141 is that the person sought to be made liable should be in charge of
and responsible for the conduct of the business of the company at the
relevant time. This has to be averred as a fact as there is no deemed liability of
a director in such cases.

Section 141 of the Act does not say that a Director of a Company shall
automatically be vicariously liable for commission of an offence on behalf
of the Company. What is necessary is that sufficient averments should be
made to show that the person who is sought to be proceeded against on the
premise of his being vicariously liable for commission of an offence by the
Company must be incharge and shall also be responsible to the Company for

118 | P a g e
the conduct of its business. 130

A reference to sub-section (2) of Section 141 fortifies the above reasoning

because sub- section (2) envisages direct involvement of any director,
manager, secretary or other officer of a company in the commission of an
offence. This section operates when in a trial it is proved that the offence has
been commit ted with the consent or connivance or is attributable to neglect on
the part of any of the holders of these offices in a company. In such a case,
such persons are to be held liable. Provision has been made for directors,
managers, secretaries and other officers of a company to cover them in cases
of their proved involvement.

The conclusion is inevitable that the liability arises on account of conduct,

act or omission on the part of a person and not merely on account of holding an
office or a position in a company. Therefore, in order to bring a case within
Section 141 of the Act the complaint must disclose the necessary facts which
make a person liable.

Notice To Directors

On a plain reading of Section 138(b) of the Act, it is seen that when a cheque
presented to a bank is dishonoured, the payee or the holder in due course of the
said cheque can make a demand for payment of the said amount of money
by giving a notice in writing to the drawer of the cheque. In spite of the
receipt of the said notice, if the drawer of the cheque fails to make payment
of the said amount of money to the payee or as the case may be to the holder in
due course of the cheque, he shall be deemed to have committed an offence.
Therefore, when the drawer of a cheque is an individual who has been issued
with the notice of dishonour of the cheque with a demand for making such
payment issued under Section 138(b) of the Act, and fails to make the
payment of the said amount of money either to the payee or to the holder in
due course he shall be deemed to have committed the offence. 131

However, when the offence is committed by a company, and by virtue of

Section 141, every person who, at the time the offence was committed, was in
charge of, and was responsible to the company for the conduct of the

130
Ibid
131
Mines and another v. Lala Karam Chand Thapar Etc
119 | P a g e
business of the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished
accordingly, whether issue of notice to the company alone is sufficient, is to be
considered. In the case of an offence committed by a company, the cheque is
drawn by a person who is in charge of the company on behalf of the
company. Therefore, in order to make the company and the drawer of the
cheque liable for the offence, a notice is necessarily to be issued to the company
as well as the drawer of the cheque on behalf of the company as per Section
138(b) of the Act.

The next question to be considered and decided is that when a presumption of guilt
could be drawn against every person who at the time the offence is committed, was
in charge of and was responsible to the company for the conduct of the business of
the company, whether such notices should be issued to such directors of the
company also. It is no doubt true that Section 138(b) speaks of issuance of notice to
the drawer of the cheque only. While interpreting the said section it is to be
presumed that unless a notice is issued to the drawer of the cheque under
Section 138 (b) and in spite of the receipt of such notice the drawer of the cheque
fails to make the payment of the amount of money covered under the cheque to the
payee or the holder in due course within 15 days of the receipt of the said
notice, the offence is deemed to have been committed. For the purpose of the cause
of action for prosecuting the drawer of the cheque, a notice under Section 138(b) is
mandatory. In this context, it is to be borne in mind that the cause of action for
prosecuting either the company or its directors, a notice as contemplated under
Section 138(b) is absolutel y necessary. On the other hand while reading Section
138(b) read with Section 141 of the Act, it is to be considered whether the cause of
action for the offence against a director who has not been put on notice of dishonour
of cheques with a demand to make the payment of the amount covered under the
cheque within 15 days, could also be prosecuted for the offence. Section 141 of the
Act of course makes a director guilty of the offence and l iable to be proceeded
against as if he has committed the offence under Section 138 of the Act when the
offence is committed by a company. However, whether such a prosecution could be
launched without there being a cause of action arising against such director as having
committed the offence in the absence of any opportunity given to him personally
in regard to the dishonour of cheque with consequent demand of payment of money
covered under the cheque. 132

132
In The Bengal Immunity Co. Ltd. v. State of Bihar and others
120 | P a g e
In The Bengal Immunity Co. Ltd. v. State of Bihar and others , the majority in the
Constitution Bench have opined that legal fictions are created only for some
definite purpose. In Hira H. Advani v. State of Maharashtra, while dealing with a
proceeding under the Customs Act, especially sub -section (4 ) of Section 171 -A
wherein an enquiry by the custom authority is referred to, and the language employ
therein, namely, "to be deemed to be a judicial proceeding within the meaning of
Sections 193 and 228 of the Indian Penal Code", it has been opined as follows :

It was argued that the Legislature might well have used the word " deemed" in
Sub-section (4) of Section 171 not in the first of the above senses but in
the second, if not the third. In our view the meaning to be attached to the
word " deemed" must depend upon the context in which it is used." 133

In State of Tamil Nadu v. Arooran Sugars Ltd. the Constitution Bench, while
dealing with the deeming provision in a statute, ruled that the role of a
provision in a statute creating legal fiction is well settled. Reference was
made to The Chief Inspector of Mines and another v. Lala Karam Chand
Thapar Etc., J.K. Cotton Spinning and Weaving Mills Ltd. and anr. v. Union
of India and others, M. Venugopal v . Divisional Manager, Life Insurance
Corporation of India and Harish Tandon v. Addl. District Magistrate,
Allahabad and eventually, it was held that when a statute creates a legal
fiction saying that something shall be deemed to have been done which in fact
and truth has not been done, the Court has to examine and ascertain as to for
what purpose and between which persons such a statutory fiction is to be
resorted to and thereafter, the courts have to give full effect to such a statutory
fiction and it has to be carried to its logical conclusion. 134

It is submitted that from the aforesaid pronouncements, the principle that can be
culled out is that it is the bounden duty of the court to ascertain for what purpose
the legal fiction has been created. It is also the duty of the court to imagine the
fiction with all real consequences and instances unless prohibited from doing so.
That apart, the use of the term 'deemed' has to be read i n its context and further the
fullest logical purpose and import are to be understood. It is because in modern
legislation, the term 'deemed' has been used for manifold purposes. The object of the
legi slature has to be kept in mind.

The word 'deemed' used in Section 141 of the Act applies to the company and the

133
In Hira H. Advani v. State of Maharashtra
134
In State of Tamil Nadu v. Arooran Sugars Ltd
121 | P a g e
persons responsible for the acts of the company. It crystallizes the corporate criminal
liability and vicarious liability of a person who is in charge of the company. The
criminal liability on account of dishonour of cheque primarily falls on the drawee
company and is extended to the officers of the company and as there is a specific
provision extending the liability to the officers, the conditions incorporated in

Section 141 are to be satisfied. Thus when the drawer of the cheque who falls
within the ambit of Section 138 of the Act is a human being or a body corporate or
even firm, prosecution proceedings can be initiated against such drawer. In this
context the phrase "as well as" used in Sub -section (1) of Section 141 of the Act has
some importance. The said phrase would embroil the persons mentioned in the first
category within the tentacles of the offence on a par with the offending company.
Similarly the words "shall also" in Sub-section ( 2) are capable of bringing the
third category persons additionally within the dragnet of the offence on an equal
par. The effect of reading Section 141 is that when the company is the drawer of
the cheque such company is the principal offender under Section 138 of the Act
and the remaining persons are made offenders by virtue of the legal fiction created
by the legislature as per the section. Hence the actual offence should have been
committed by the company, and then alone the other two categories of persons can
135
also become liable for the offence. A principle of statutory interpretation
embodies the policy of the law, which is in turn based on public policy. The court
presumes, unless the contrary intention appears, that the legislator intended to
conform to this legal policy. A principle of statutory interpretation can therefore be
described as a principle of legal policy formulated as a guide to legislative
intention.

It will be apt to quote a passage from Maxwell's The Interpretation of Statutes .

" The strict construction of penal statutes seems to manifest itself in four ways:
in the requirement of express language for the creation of an offence; in
interpreting strictly words setting out the elements of an offence; in
requiring the fulfilment to the letter of statutory conditions precedent to the
infliction of punishment; and in insisting on the strict observance of
technical provisions concerning criminal procedure and jurisdiction."

135
In State of Tamil Nadu v. Arooran Sugars Ltd
122 | P a g e
 CHAPTER VII

TECHNICALITIES AND JUDICIAL TRENDS

A Judge is a law student who marks his own examination

papers

H.L.Mencken

Introduction

According to the researcher judiciary being one of the vital pillars of a

democratic country, not only helps in the prevention of crime and acts as a
guardian of the formulated laws but also keeps the pace with the changing
time and socio economic scenario by taking note of the changing
circumstances and by making an unfailing endeavour to incorporate the effect
of such changes in the existing laws. Judicial system not only has the power
to issue guidelines and directions but also sometimes there are certain
questions which need to be interpreted and it is the judiciary which interprets
the language of the statute in order to bring forth the best possible meaning
and spirit of the law. 136

It is nrealistic to accept that law as given by the legislature would have

provided for all exigencies and eventualities. I t is therefore not only necessary
but also obligatory on t he part of judicial system to step forth for filling up the
lacunae in th e existing laws and regulations. When the court performs these
functions they legislate judiciary. But this kind of legislation, which stan ds
explicitly delegated to them, is for furthering the object of legislation and for
promoting the goals of the society. As long as the courts keep adhered to the
ethos of the society and do not travel off its course, so long as they attend to

136
www.quotationspage.com/subject/laws, accessed on September 19, 2015.
Ratan Chand Hira Chand v. Askar Nawaz Jung, 1991(3) SCC 67.

123 | P a g e
furnish the necessity of time and do not refurnish them, their role in this
respect has to be welcomed.

There may arise some eventualities, where the existing provisions of law are not able
to serve the required benefit or there may be some left out contingencies or
categories whose requirements were not considered while the laws were
formulated or it was not desired by the legislature to give a specific
inclusion for them in the law, being alive to the circumstances existing at
that time. The problems in the field of dishonouring of negotiable instruments
nee d to be tacked with a combination of humanitarian as well as firm legal
measures so that the person who knocks the door of the court to seek redressal
of his grievance against the unscrupulous drawer should not feel victimised in
order to secure justice from the legal frame work of the country .At the same
time, the honest drawers who have issued cheques in favour of their creditors
with bonafide intentions ,should not feel harassed at the hands of their
prosecutors and lawyers . In the light of the above dichotomy ,some of the
provisions of the existing laws which in their strict interpretation operate as
a barrier, need to be reviewed for providing justice to all.

In the previous chapters various provisions incorporated under the

Negotiable Instruments Act 1881 ,have been detailed out , which are meant for
penalising the act of dishonouring of the cheque as well as the provisions
which serve as a mandate for initiating prosecution against drawer of the
cheque . The judicial system in India has further made a zealous attempt to
clarify the points where the legislature has kept mum and has simultaneously
made an endeavour to throw more light on the already existing legal
provisions. In the present chapter an attempt has been made to analyse the role
of judiciar y by looking into catena of judgements rendered by the hon’ble
Supreme Court as well as the various High Courts. 137

Undeniably, the penal provisions of section 138 are founded on the edifice of
various technicalities ranging from issuance of notice to the accused to
leading of evidence by way of affidavits by the complainant as well as the

137
www.quotationspage.com/subject/laws, accessed on September 19, 2015.
Ratan Chand Hira Chand v. Askar Nawaz Jung, 1991(3) SCC 67.

124 | P a g e
accused.

A large number of complaints under section 138 of the Negotiable

Instruments Act are dismissed on technical issues lone leave aside the merits
of the case. The major technical points which often crop up in cheque bouncing
cases and the judicial opinions thereupon are discussed below:

How is the Period of Thirty Days for Sending Legal Notice To Be

Computed?

This issue came up for consideration in Sivakumar v. Natarajan . The Apex

Court opined that the offence under Section 138 of the Act can be completed
only with the concatenation of a number of acts, namely, (1 ) Drawing of the
cheque, (2) Presentation of the cheque to the bank, ( 3) Returning the cheque
un paid by the drawee bank, ( 4) Giving notice in writing to the drawer of the
cheque demanding payment of the cheque amount, (5) failure of the drawer
to make payment within 15 days of the receipt of the notice. It is one thing
to say that sending of a notice is one of the ingredients for maintaining the
complaint but it is another thing to say that dishonour of a cheque by itself
constitutes an offence. For the purpose of proving its case that the accused had
committed an offence under Section of the Negotiab le Instruments Act, the
ingredients 138 thereof are required to be proved. What would constitute an
offence is stated in the main provision. The proviso appended thereto,
however, imposes certain further conditions which are required to be fulfilled
before cog nizance of the offence can be taken. If the ingredients for
constitution of the offence laid down in the provisos ( a), ( b) and (c) appended
to Section of the Negotiable Instruments Act intended to be applied in favour of
the accused, there cannot be any doubt that receipt of a notice would
ultimately give rise to the cause of action for filing a complaint. As it is
only on receipt of the notice the accused at his own peril may refuse to pay the
amount. Clauses ( b) and (c) of the proviso to Section 138 there fore must
be read together. Issuance of notice would not by itself give rise to a cause
of action but communication of the notice would. The Court further opined

138
2009(13) SCC 623.

125 | P a g e
that both clauses ( a) and ( b) of the proviso appended toSection 138 of the Act
employed the term "within a period". whereas clause ( a) refers to presentation
of the cheque to the bank within a period of six months from the date on
which it is drawn, clause (b) provides for issuance of notice "to the drawer of
the cheque within thirty days of the receipt of information". The words
"within thirty days of the receipt of information" are significant. The
Parliament advisedly did not use the words 'from the date of receipt of
information' in Section 138 of the Act. It is also of some significance to
notice that in terms of Section 9 of the General Clauses Act, 1897, the
statute is required to use the word "from" and for the purpose of including the
last in a series of days or any other period of time, to use the word "to". The
departure made from the pro visions of Section 9 of the General Clauses Act
by the Parliament, therefore, deserves serious consideration. 139

In the instant case cheque was dishounoured by Bank on 2.12.2003,

intimation was received by drawee from Bank on 3.12.2003 and legal notice
demanding payment issued on 2. 1.2004. It was held, notice was issued on 31st
day and not within 30 days from date of receipt of intimation from bank, so
the complaint is not maintainable. Indisputably, the notice was issued on the
31st day and not within a period of thirty days from the date of receipt of
intimation from the bank. If Section 9 of the General Clauses Act is not
applicable, clause (b) of the proviso appended to Section 138 of the Act
was required to be complied with by the respondent for the purpo se of
maintaining a complaint petition against the appellant.

Whether during trial plea of non -service of notice can be taken by the
drawer?

Usually a controversy arises in the context of service of notice in terms of

Section 138 of the Act. The co nditions pertaining to the notice to be given to
the drawer, have been formulated and incorporated in Clauses (b) and ( c) of
the proviso to Section 138 of the Act, which readas follows : " Provided that
nothing contained in this section shall apply unless-

(a) .the payee or the holder in due course of the cheque, as the case may be,

139 4
Ibid.

126 | P a g e
makes a demand for the payment of the said amount of money by giving a
notice in writing, to the drawer of the cheque, of the receipt of information by
him from the bank regarding the return of the cheque as unpaid; and

(b) the drawer of such cheque fails to make the payment of the said amount of
money to the payee or, as the case may be, to the holder in due course of
the cheque, within fifteen days of the receipt of the said notice."

The issue with regard to interpretation of the expression 'giving of notice'

used in Clause (b) of the proviso came up for interpretation in K. Bhaskaran
v. Sankaran Vaidhyan Balan & Anr . Considering the question with particular
reference to scheme of Section 138 of the Act, it was held that failure on the
part of the drawer to pay the amount should be within fifteen days 'of the
receipt' of the said notice. 'Giving notice' in the context is not the same as '
receipt of notice'. G iving is a process of which receipt is the accomplishment.
It is for the payee to perform the former process by sending the notice to the
drawer at the correct address and for the drawer to comply with Clause (c) of
the proviso. Emphasising that the provisions contained in Section 138 of the
Act required to be construed liberally, it was observed thus :140

" If a strict interpretation is given that the drawer should have actually received
the notice for the period of 15 days to start running no matter that the payee
sent the notice on the correct address, a trickster cheque drawer would get the
premium to avoid receiving the notice by different strategies and he could
escape from the legal consequences of Section 138 of the Act. It must be borne
in mind that Court should not adopt an interpretation which helps a dishonest
evader and clips an honest payee as that would defeat the very legislative
measure.

In Maxwell's Interpretation of Statues the learned author has emphasised that "
provisions relating to giving of notice often receive l iberal interpretation,"
(vide page 99 of the 12th Edn.) The context envisaged in Section 138 of the
Act invites a liberal interpretation for the person who has the statutory
obligation to give notice because he is presumed to be the loser in the
transaction and it is for his interest the very provision is made by the
legislature. The words in Clause (b) of the proviso to Section 138 of the Act

140
in K. Bhaskaran v. Sankaran Vaidhyan Balan & Anr .
127 | P a g e
show that payee has the statutory obligation to " make a demand" by giving
notice. The thrust in the clause is on the need to " make a demand". It is
only the mode for making such demand which the legislature has prescribed.
A payee can send the notice for doing his part for giving the notice. Once it is
dispatched his part is over and the next depends on what the sendee does."

It is submitted that s ince in Bhaskarans case, the notice issued in terms of

Clause (b) had been returned unclaimed and not as refused, the Court posed
the question: "Will there be any significant difference between the two so far
as the presumption of service is concerned?" It was observed that though
Section 138 of the Act does not require that the notice should be given only
by "post", yet in a case where the sender has dispatched the notice by post
with correct address w ritten on it, the principle incorporated in Section 27 of
the General Clauses Act, 1897 could profitably be imported in such a case. It
was held that in this situation service of notice is deemed to have been
effected on the sendee unless he proves that it was not really served and
that he was not responsible for such non-service. 141

In the landmark judgment of C.C. Alavi Haji v . Palapetty Muhammed , it has

been held that where notice demanding payment is sent to accused through
registered post and complaint is filed subsequently, then if accused claims
that he did not receive the notice, he can make payment within 15 days from
receipt of summons from court to escape prosecution. Entire purpose of
requiring a notice is to give an opportunity to the drawer to p ay the cheque
amount within 15 days of service of notice and thereby free himself from the
penal consequences of Section 138. While discussing the various nuances
associated with service of notice, the court observed that giving a notice to
the drawer before filing complaint under Section 138 of the Act is a
mandatory requirement. Giving notice in the context is not the same as 'receipt
of notice'. Giving is a process of which receipt is the accomplishment. It is for
the payee to perform the former process by sending the notice to the drawer at
the correct address and for the drawer to comply with clause ( c) of the
proviso. While further discussing the provisions of section 27 of the General
Clauses Act, 1897, the Court also held that –

141
1999(4) RCR (Criminal) 309.

128 | P a g e
(1)When a notice is sent by registered post and is returned with a postal
endorsement "refused" or "not available in the house" or "house locked" or
"shop closed" or "addressee not in station", due service has to be presumed.

(2)In view of the presumption available under Section 27 of the Act, it is not
necessary to aver in the complaint under Section 138 of the Act that service of
notice was evaded by the accused or that the accused had a role to play in
the return of the notice unserved.

All these aspects have been highlighted and reiterated by in D.Vinod Shivappa
v. Nanda Belliappa 7. Elaborately dealing with the situation where the notice
could not be served on the addressee for one or the other reason, such as his
non availability at the time of delivery, or premises remaining locked on
account of his having gone elsewhere etc; it was observed that if in each such
case, the law is understood to mean that there has been no service of notice, it
would completely defeat the very purpose of the Act. It would then be very
easy for an unscrupulous and dishonest drawer of a cheque to make himself
scarce for sometime after issuing the cheque so that the requisite statutory
notice can never be served upon him and consequently he can never be
prosecuted. It was further observed that once the payee of the cheque issues
notice to the drawer of the cheque, the cause of action to file a complaint arises
on the expiry of the period prescribed for payment by the drawer of the
cheque. 142 If he does not file a complaint within one month of the date on
which the cause of action arises under Clause (c) of the proviso to Section
138 of the Act, his complaint gets barred by time. Thus, a person who can
dodge the postman for about a month or two, or a person who can get a fake
endorsement made regarding his non availability, can successfully avoid his
prosecution because the payee is bound to issue notice to him within a period
of 30 days from the date of receipt of information from the bank regarding
the return of the cheque as unpaid. He is, therefore, bound to issue the notice,
which may be returned with an endorsement that the addressee is not
available on the given address. The Court held: " We cannot also lose sight of
the fact that the drawer may by dubious means manage to get an incorrect
endorsement made on the envelope that the premises has been found locked or

142
2007(3) RCR (Criminal) 185.

129 | P a g e
that the addressee was not available at the time when postman went for
delivery of the letter. It may be that the address is correct and even the
addressee is available but a wrong endorsement i s manipulated by the
addressee. In such a case, if the facts are proved, i t may amount to refusal of
the notice. If the complainant is able to prove that the drawer of the cheque
knew about the notice and deliberately evaded service and got a false
endorsement made only to defeat the process of law, the Court shall presume
service of notice. This, however, is a matter of evidence and proof. Thus even
in a case where the notice is returned with the endorsement that the premises
has always been found locked or the addressee was not available at the t ime of
postal delivery, it will be open to the complainant to prove at the trial by
evidence that the endorsement is not correct and that the addressee, namely the
drawer of the cheque, with knowledge of the notice had deliberately avoided
to receive notice." 143

It is, thus, trite to say that where the payee dispatches the notice by
registered post with correct address of the drawer of the cheque, the principle
incorporated in Section 27 of the General Clauses Act wou ld be attracted;
the requirement of Clause ( b) of proviso to Section 138 of the Act stands
complied with and cause of action to file a complaint arises on the expiry of
the period prescribed in Clause ( c) of the said proviso for payment by the
drawer of the cheque. Nevertheless, it would be without prejudice to the
right of the drawer to show that he had no knowledge that the notice was
brought to his address.

Another question requiring consideration is in regard to the implication of

Section 114 of the Indian Evidence Act, 1872 insofar as the service of notice
under the said proviso is concerned. Section 114 of the Indian Evidence Act,
1872 reads as follows : " Section 114 - Court may presume existence of
certain facts. - The Court may presume the existence of any fact which it
thinks likely to have happened. regard being had to the common course of
natural events human conduct and public and private business, in their
relation to the facts of the particular case.

Illustrations

143
2006 (6) SCC 456.

130 | P a g e
The Court may presume - (f) That the common course of business has been
followed in particular cases;."According to Section 114 of the Act, read with
illustration ( f) thereunder, when it appears to the Court that the common course of
business renders it probable that a thing would happen, the Court may draw
presumption that the thing would have happened, unless there are circumstances in a
particular case to show that the common course of business was not followed. Thus,
Section 114 enables the Court to presume the existence of any fact which it thinks
likely to have happened, regard being had to the common course of natural events,
human conduct and public and private business in their relation to the facts of the
particular case. Consequently, the court can presume that the common course of
business has been followed in particular cases. 144

When applied to communications sent by post, Section 114 enables the Court to
presume that in the common course of natural events, the communication would have
been delivered at the address of the addressee. But the presumption that is raised
under Section 27 of the General Clauses Act is a far stronger presumption. Further,
while Section 114 of Evidence Act refers to a general presumption, Section 27
refers to a specific presumption. For the sake of ready reference, Section 27 of General
Clauses Act is extracted below :Meaning of service by post. - Where any Central
Act or Regulation made after the commencement of this Act authorizes or
requires any document to be served by post, whether the expression " serve"
or either of the expressions" " give" or " send" or any other expression is
used, then, unless a different intention appears, the service shall be deemed to
be effected by properly addressing, pre-paying and posting by registered post,
a letter containing the document, and, unless the contrary is proved, to have
been effected at the time at which the letter would be delivered in the ordinary
course of post".
Section 27 gives rise to a presumption that service o f notice has been effected when i t
is sent to the correct address by registered post. In view of the said presumption,
when stating that a notice has been sent by registered post to the address of the
drawer, it is unnecessary to further aver in the complaint that in spite of the return of
the notice unserved, it is deemed to have been served or that the addressee is deemed
to have knowledge of the notice. Unless and until the contrary is proved by the
addressee, service of notice is deemed to have been effected at the time at which the
letter would have been delivered in the ordinary course of business. It has been held

144
Supra Note 6.
131 | P a g e
in Jagdish Singh v . Natthu Singh State of M.P. v. Hiralal & Ors., and V. Raja
Kumari v. P. Subbarama Naidu & Anr. that when a notice is sent by registered post
and is returned with a postal endorsement "refused" or "not available in the house" or
"house locked" or "shop closed" or "addressee not in station", due service has to be
presumed. It is, therefore, manifest that in view of the presumption available under
Section 27 of the Act, it is not necessary to aver in the complaint under Section 138 of
the Act that service of notice was evaded by the accused 145 or that the accused had a
role to play in the return of the notice unserved.
It has been also held in C.C. Alavi‟s case that insofar as the question of disclosure of
necessary particulars with regard to the issue of notice in terms of proviso (b) of
Section 138 of the Act, in orde r to enable the Court to draw presumption or inference
either under Section 27 of the General Clauses Act or Section 114 of the Evidence
Act, is concerned, there is no material difference between the two provisions. When
the notice is sent by registered po st by correctly addressing the drawer of the cheque,
the mandatory requirement of issue of notice in terms of Clause (b) of proviso to
Section 138 of the Act stands complied with. It is needless to emphasise that the
complaint must contain basic facts regarding the mode and manner of the issuance of
notice to the drawer of the cheque. It is well settled that at the time of taking
cognizance of the complaint under Section 138 of the Act, the Court is required to be
prima facie satisfied that a case under the said Section is made out and the aforenoted
mandatory statutory procedural requirements have been complied with. It is then for
the drawer to rebut the presumption 146 about the service of notice and show that he
had no knowledge that the notice was brought t o his address or that the address
mentioned on the cover was incorrect or that the letter was never tendered or that
the report of the postman was incorrect. This interpretation of the provision would
effectuate the object and purpose for which proviso to Section 138 was enacted,
namely, to avoid unnecessary hardship to an honest drawer of a cheque and to
provide him an opportunity to make amends.
As noticed above, the entire purpose of requiring a notice is to give an opportunity to
the drawer to pay the cheque amount within 15 days of service of notice and thereby
free himself from the penal consequences of Section 138. In Vinod Shivappa‟ s case, it
was observed: " One can also conceive of cases where a well intentioned drawer
may have inadvertently missed to make necessary arrangements for reasons
beyond his control, even though he genuinely intended to honour the cheque

145
Jagdish Singh v . Natthu Singh
State of M.P. v. Hiralal & Ors.,
V. Raja Kumari v. P. Subbarama Naidu & Anr.
146

132 | P a g e
drawn by him. The law treats such lapses induced by inadvertence or
negligence to be pardonable, provided the drawer after notice makes amends
and pays the amount within the prescribed period. It is for this reason that
Clause (c) of proviso to Section 138 provides that the section shall not apply
unless the drawer of the cheque fails to make the payment within 15 days of
the receipt of the said notice. To repeat, the proviso is meant to protect honest
drawers whose cheques may have been dishonoured for the fault of others,
or who may have genuinely wanted to fulfi ll their promise but on account of
inadvertence or negligence failed to make necessary arrangements for the
payment of the cheque. The proviso is not meant to protect unscrupulous
drawers who never intended to honour the cheques issued by them, it being a
part of their modus operandi to cheat unsuspecting persons." 147

It is also to be borne in mind that the requirement of giving of notice is a clear

departure from the rule of Criminal Law, where there is no stipulation of giving of
a notice before filing a complaint. Any drawer who claims that he did not receive the
notice sent by post , can, within 15 days of receipt of summons from the court in
respect of the complaint under Section 138 of the Act, make payment of the cheque
amount and submit to the Court that he had made payment within 15 days of receipt
of summons (by receiving a cop y of complaint with the summons) and, therefore, the
complaint is liable to be rejected. A person who does not pay within 15 days of
receipt of the summons from the Court along with the copy of the complaint under
Section 138 of the Act, cannot obviously contend that there was no proper service of
notice as required under Section 138, by ignoring statutory presumption to the
contrary under Section 27 of the General Clauses Act and Section 114 of the
Evidence Act.
Whether the drawer is l iable for dishon our of post dated cheques issued as
security?
In Sampelly Satyanarayana Rao v. Indian Renewable Energy Development Agency
17
Limited , it has been held that under the Negotiable Instruments Act, 1881 where a
loan is taken by accused and post dated cheque is issued towards re- payment but
described as security, the accused is liable under section 138 as it is a cheque for
discharge of existing liability. In this case the appellant was Director of the

147
AIR 1992 Supreme Court 1604.
(1996)7 SCC 523. &2004(4) RCR (Criminal) 933.

133 | P a g e
company whose cheques have been dishonoured. The company was engaged in the
field of power generation. The respondent was engaged in development of renewable
energy and was a Government of India enterprise. Vide the loan agreement dated 15th
March, 2001, the respondent agreed to advance loan of Rs. 11.50 crores for setting up
of 4.00 MW Biomass based Power Project in the State of Andhra Pradesh. The
agreement recorded that post- dated cheques towards payment of instalment of loan
(principal and interest) were given by way of security. The cheques carried different
dat es depending on the dates when the instalments were due and upon dishonour
thereof, complaints including the one dated 27th September, 2002 were filed by the
respondent in the court of the concerned Magistrate at New Delhi. The appellant
approached the High Court to seek quashing of the complaints arising out of 18
cheques of the value of about Rs.10.3 crores. Contention of the appellant in support
of his case was that the cheques were given by way of security as mentioned in the
agreement and that on the date the cheques were issued, no debt or liability was due.
Thus, dishonour of post-dated cheques given by way of security did not fall under
Section 138 of the Act. Reliance was placed on clause 3 .1 (iii) of the agreement to
the effect that deposit of post -dated cheques toward repayment of instalments was by
way of " security". Even the first instalment as per the agreement became due
subsequent to the handing over of the post -dated cheque. Thus, contended the
appellant, it was not towards discharge of debt or liability in present but for the
amount payable in future. 148
The High Court did not accept the above contention and held that in the present case
when the post -dated cheques were issued, the loan had been sanctioned and hence
the same fall in the first category that is they were cheque issued for a debt in present
but payable in future. While hearing the appeal, the Supreme Court referred to its
decision in Indus Airways Private Limited v. Magnum Aviation Private Limited, on
which strong reliance had been placed by learned counsel for the appellant. The
question therein was whether post -dated cheque issued by way of advance payment
for a purchase order could be considered for discharge of legally enforceable debt.
The cheque was issued by way of advance payment for the purchase order but the
purchase order was cancelled and payment of the cheque was stopped. This Court
held that while the purchaser may be liable for breach of the contract, when a
contract provides that the purchaser has to pay in advance and cheque towards
advance payment is dishonoured, it will not give rise to criminal liability under
Section 138 of the Act. Issuance of cheque towards advance payment could not be
considered as discharge of any subsisting liability. View to this effect of the
148
Supra Note 6. 2016(4) RCR (Civil) 487.

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Andhra Pradesh High Court in Swastik Coaters (P) Ltd. v . Deepak Bros., Madras
High Court in Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd., Gujarat
High Court in Shanku Concretes (P) Ltd. v. State of Gujarat, and Kerala High Court in
Supply House v. Ullas , was held to be correct view as against the view of Delhi High
Court in Magnum Aviation (P) Ltd. v. State, and Mojj Engg. Systems Ltd. v.
A.B. Sugars Ltd . , which was disapproved. While deciding the question involved,
the Supreme cou rt held that the question whether a post -dated cheque is for
"discharge of debt or liability" depends on the nature of the transaction. If on the
date of the cheque liability or debt exists or the amount has become legally
recoverable, the Section is attracted and not otherwise. Reference to the facts of the
present case clearly shows that though the word "security" is used in clause 3. 1(iii)
of the agreement, the said expression refers to the cheques being towards
repayment of instalments. The repayment becomes due under the agreement, the
moment the loan is advanced and the instalment falls due. Once the loan was
disbursed and instalments have fallen due on the date of the cheque as per the
agreement, dishonour of such cheques would fall under Section 138 of the Act. The
cheques undoubtedly represent the outstanding liability. 149

The Apex Court further went on to hold that the judgment in Indus Airways (supra)
is clearly distinguishable. As already noted, it was held therein that liability arising
out of clai m for breach of contract under Section 138, which arises on account of
dishonour of cheque issued was not by itself at par with criminal liability towards
discharge of acknowledged and admitted debt under a loan transaction. Dishonour of
cheque issued for discharge of later liability is clearly covered by the statute in
question. Admittedly, on the date of the cheque there was a debt/liability in presenti
in terms of the loan agreement, as against the case of Indus Airways (supra) where the
purchase order had been cancelled and cheque issued towards advance payment for
the purchase order was dishonoured. In that case, it was found that the cheque had not
been issued for discharge of liability but as advance for the purchase order which
was cancelled. Keeping in mind this fine but real distinction, the said judgment
cannot be applied to a case of present nature where the cheque was for repayment of
loan instalment which had fallen due though such deposit of cheques towards
repayment of instalments was also des cribed as "security" in the loan agreement. In
applying the judgment in Indus Airways (supra), one cannot lose sight of the

149
2014(2) RCR (Civil) 611.
(1997) Crl. LJ 1942 (AP).
1999(1) RCR (Criminal) 683
135 | P a g e
difference between a transaction of purchase order which is cancelled and that of a
loan transaction where loan has actually been advanced and its repayment is due on
the date of the cheque.
Crucial question to determine applicability of Section 138 of the Act is whether the
cheque represents discharge of existing enforceable debt or liability or whether it
represents advance payment without there being subsisting debt or l iability. While
approving the views of different High Courts noted earlier, this is the underlying
principle as can be discerned from discussion of the said cases in the judgment of
the Court.
Whether a complaint can be filed by attorney holder of the complainant?

The question as to whether complainant (payee) can file complaint under Negotiable
Instruments Act through power of attorney holder came up for consideration in A. C.
Narayanan v . State of Maharashtra . The following five points were framed for
determination by the Court:

 Whether a Power of Attorney holder can sign and file a complaint petition
on behalf of the complainant?/ Whether the eligibility criteria prescribed by
Section 142(a) of NI Act would s tand satisfied if the complaint petition
itself is filed in the name of the payee or the holder in due course of the
cheque?
 Whether a Power of Attorney holder can be verified on oath under Section
200 of the Code? Whether specific averments as to the knowledge of the
Power of Attorney holder in the impugned transaction must be explicitly
asserted in the complaint?
 If the Power of Attorney holder fails to assert explicitly his knowledge in
the complaint then can the Power of Attorney holder verify the comp laint
on oath on such presumption of knowledge?
 Whether the proceedings contemplated under Section 200 of the Code can
be dispensed with in the light of Section 145 of the N. I. Act which was
introduced by an amendment in the year 2002? 150

While discussing the law on the points above with specific reference to section 142 of

150 27
Ibid.
2013(4) R.C.R.(Civil) 382

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the N. I. Act as well as the provisions of the Power of Attorney Act 1882, the Court
held that filing of complaint petition under Section 138 of N. I. Act through power of
attorney is perfectly legal and competent. It was further held that the Power of
Attorney holder can depose and verify on oath before the Court in order to prove
the contents of the complaint. However, the power of attorney holder must have
witnessed the transaction as an ag ent of the payee/holder in due course or possess due
knowledge regarding the said transactions. It is required by the complainant to make
specific assertion as to the knowledge of the power to attorney holder in the said
transaction explicitly in the compl aint and the power of attorney holder who has no
knowledge regarding the transactions cannot be examined as a witness in the case. In
the light of Section 145 of N. I. Act, it is open to the Magistrate to rely upon the
verification in the form of affidavit filed by the complainant in support of the
complaint under Section 138 of the N. I. Act and the Magistrate is neither mandatorily
obliged to call upon the complainant to remain present before the Court, nor to
examine the complainant as his witness upon oath for taking the decision whether or
not to issue process on the complaint under Section 138 of the N. I. Act.

It was also held that where the payee is a proprietary concern, the complaint can be
filed (i) by the proprietor of the proprietary concern, describing himself as the sole
proprietor of the "payee"; (ii) the proprietary concern, describing i tself as a sole
proprietary concern, represented by its sole proprietor; and (iii) the proprietor or the
proprietary concern represented by the attorney holder under a power of attorney
executed by the sole proprietor.

While discussing the provisions of Powers of Attorney Act, 1882 the Court also
pondered over the question as to whether an attorney holder who has been given
power to file a complaint by payee can delegate this power to any other person. It was
held that it will completely depend on the terms of the general power of attorney, the
authority to sub-delegate the functions must be explicitly mentioned in the general
power of attorney otherwise, the sub -delegation will be inconsistent with the general
power of attorney and thereby will be invalid in law. Nevertheless, the general power
of attorney itself can be cancelled and be given to another person. 151

While deciding the matter in question, the Apex Cou rt referred to a decision, as far
back as, in the case of Vishwa Mitter v. O.P. Poddar , wherein it had been held
that i t is clear that anyone can set the criminal law in motion by filing a complaint
151
1984(1) RCR (Criminal) 196.

137 | P a g e
of facts constituting an offence before a Magistrate entitled to take cognizance. It
has been held that no court can decline to take cognizance on the sole ground that
the complainant was not competent to file the complaint. It has been held that if any
special statute prescribes offences and makes any special provision for taking
cognizance of such offences under the statute, then the complainant requesting the
Magistrate to take cognizance of the offence must satisfy the eligibility criterion
prescribed by the statute. In the present case, the only eligibility criteria prescribed
by Section 142 is that the complaint must be by the payee or the holder in due course.
This criteria is satisfied as the complaint is in the name and on behalf of the appellant
Company.
However, in a later judgment in Janki Vashdeo Bhojwani and Anr. v. Indusind Bank
Ltd. and Ors. albeit in a different context, another Division Bench of this Court
overruled the judgment of the Bombay High Court in Pradeep Mohanbay v . Minguel
Carlos Dias, inter alia opining as follows that Order 3 Rules 1 and 2 Civil Procedure
Code empowers the holder of power of attorney to `act' on behalf of the principal. The
word `acts' employed in Order 3 Rules 1 and 2 Civil Procedure Code confines only to
in respect of `acts' done by the power - of-attorney holder in exercise of power granted
by the instrument. The term `acts' would not include deposing in place and instead of
the principal. In other words, if the power of attorney holder has rendered some `acts'
in pursuance of power of attorney, he may depose for th e principal in respect of such
acts, but he cannot depose for the principal for the acts done by the principal and not
by him. Similarly, he cannot depose for the principal in respect of the matter of which
only the principal is entitled to be cross - examined.

As noticed hereinabove, though Janki Vashdeo Bhojwani‟s case, relates to powers of

Power of Attorney holder under Civil Procedure Code but it was concluded therein
that a plaint by a Power of Attorney holder on behalf of the original plaintiff is maint
ainable provided he has personal knowledge of the transaction in question. In a
way, it is an exception to a well settled position that criminal law can be put in
motion by anyone and under the Statute, one stranger to transaction in question,
namely, legal heir etc., can also carry forward the pending criminal complaint or
initiate the criminal action if the original complainant dies . Keeping in mind various
situations like inability as a result of sickness, old age or death or staying abroad of
the payee or holder in due course to appear and depose before the Court in order
to prove the 152 complaint, it is permissible for the Power of Attorney holder or for

152
2005(1) RCR (Civil) 240. 2001(3) RCR (Criminal) 1.

138 | P a g e
the legal representative( s) to file a complaint and/ or continue with the pending
criminal complaint for and on behalf of payee or holder in due course. However, it
is expected that such power of attorney holder or legal representative(s) should
have knowledge about the transaction in question so as to able to bring on record the
truth of the grievance/offence, otherwise, no criminal justice could be achieved in
case payee or holder in due course, is unable to sign, appear or depose as
complainant due to above quoted reasons. Keeping these aspects in mind, the Court
had taken the view that if complaint is filed for and on behalf of payee or holder in
due course, that is good enough compliance with Section 142 of the Act.

The stand of the appellant that no complaint can be filed and no cognizance of the
complaint can be taken if the complaint is by the power of attorney holder, since i t
is against Section 200 of the Code and deserves to be rejected. There is no dispute
that complaint has to be filed by the complainant as contemplated by Section 200
of the Code, but the said Section does not create any embargo t hat the attorney
holder or legal representative(s) cannot be a complainant. The power of attorney
holder is the agent of the grantor. When the grantor authorizes the attorney holder to
initiate legal proceedings and the attorney holder accordingly initiate s such legal
proceedings, he does so as the agent of the grantor and the initiation is by the grantor
represented by his attorney holder and not by the attorney holder in his personal
capacity. Therefore, where the payee is a proprietary concern, the complaint can be
filed by the proprietor of the proprietary concern, describing himself as the sole
proprietor of the payee, the proprietary concern, describing i tself as a sole
proprietary concern, represented by its sole proprietor, and the proprietor or the
proprietary concern represented by the attorney holder under a power of attorney
executed by the sole proprietor. However, the power of attorney holder cannot file
a complaint in his own name as if he was the complainant. In other words, he can
initiate criminal proceedings on behalf of the principal. From a conjoint reading of
Sections 138, 142 and 145 of the Negotiable Instruments Act as well as Section 200 of
the Code, it is clear that it is open to the Magistrate to issue process on the basis
of the contents of the complaint, documents in support thereof and the affidavit
submitted by the complainant in support of the complaint. Once the complainant
files an affidavit in support of the complaint before issuance of the process under
Section 200 of the Co de, it is thereafter open to the Magistrate, if he thinks fit, to call
upon the complainant to remain present and to examine him as to the facts contained in
the affidavit submitted by the complainant in support of his complaint. However, it
is a matter of discretion and the Magistrate is not bound to call upon the
complainant to remain present before the Court and to examine him upon oath for
139 | P a g e
taking decision whether or not to issue process on the complaint under Section 138
of the N. I. Act. For the purpose of issuing process under Section 200 of the Code, it
is open to the Magistrate to rely upon the verification in the form of affidavit filed by
the complainant in support of the complaint under Section 138 of the N. I. Act.

It is only if and where the Magistrate, after considering the complaint 153 under Section
138 of the Negotiable Instruments Act, documents produced in support thereof and
the verification in the form of affidavit of the complainant, is of the view that
examination of the complainant or his witness( s) is required, the Magistrate may call
upon the complainant to remain present before the Court and examine the complainant
and/or his witness upon oath for taking a decision whether or not to issue process on
the complaint under Section 138 of the Negotiable Instruments Act.

Thus the power of attorney holder may be allowed to file, appear and depose for the
purpose of issue of process for the offence punishable under Section 138 of the Act.
An exception to the above is when the power of attorney holder of the complainant
does not have a personal knowledge about the transactions then he cannot be
examined. However, where the attorney holder of the complainant is in charge of the
business of the complainant -payee and the attorney holder alone is persona lly aware
of the transactions, there is no reason why the attorney holder cannot depose as a
witness. Nevertheless, an explicit assertion as to the knowledge of the Power of
Attorney holder about the transaction in question must be specified in the complaint.
Thus, the Apex Court clarified the position and answered the questions in the following manner:
 Filing of complaint petition under Section 138 of N. I Act through power of
attorney is perfectly legal and competent.
 The Power of Attorney holder can depose and verify on oath before the Court
in order to prove the c ontents of the complaint. However, the power of
attorney holder must have witnessed the transaction as an agent of the
payee/holder in due course or possess due knowledge regarding the said
transactions.
 It is required by the complainant to make specific assertion as to the
knowledge of the power of attorney holder in the said transaction
explicitly in the complaint and the power of attorney holder who has no
knowledge regarding the transactions cannot be examined as a witness in
the case.

153
Supra Note 27.
140 | P a g e
 In the light of section 145 of N. I Act, i t is open to the Magistrate to rely
upon the verification in the form of affidavit filed by the complainant in
support of the complaint under Section 138 of the N. I Act and the
Magistrate is neither mandatorily obliged to call upon the complainant to
remain present before the Court, nor to examine the complainant of his
fitness upon oath for taking the decision whether or not to issue process on the
complaint under Section 138 of the N. I. Act.
 The functions under the general power of attorney cannot be delegated to
another person without specific clause permitting the same in the power of
attorney. Nevertheless, the general power of attorney itself can be cancelled
and be given to another person.

Whether Court Can Take Cognizance of Complaint Filed Before Expiry of 15

Days Of Service Of Notice

In Narsingh Das Tapadia v. Goverdhan Das Partani and Anr. , a similar question arose
before a two- Judge Bench of the Court. This was a case where on the date the
complaint was filed the complainant had no cause of action but by the time
cognizance of the offence was taken by the Magistrate, the stipulated period of 15
days had expired and the commission of the offence was complete. The Court drew a
distinction between "taking cognizance of an offence" 154 and "the filing of a
complaint by the complainant". It was held that while there was a bar to the taking
of a cognizance by the Magistrate, there was no bar to the filing of a complaint and
that a complaint filed even before the expiry of the period of 15 days could be made
a basis for taking cognizance of the offence provided cognizance was taken after the
expiry of the said period. The Court observed : " Mere presentation of the complaint
in the court cannot be held to mean that its cognizance had been taken by the
Magistrate. If the complaint is found to be premature, it can await maturity or
be returned to the complainant for filing later and its mere presentation at an
earlier date need not necessarily render the complaint liable to be dismissed or
confer any right upon the accused to absolve himself from the criminal liability
for the offence committed."
A two Judge Bench in Sarav Investment & Financial Consultancy Private Limited and
Another v. Llyod Register of Shipping Indian Office Staff Provident Fund and Anr .

154
Ibid.

141 | P a g e
41
, held that Section 138 of the Negotiable Instruments Act contains a penal provision
and creates a vicarious liability. Even the burden of proof to some extent is on t he
accused. Having regard to the purport of the said provision and the severe penalty
sanctioned by it, the same warrants a strict construction. The Court further held that
service of a notice in terms of Section 138 proviso ( b) of the Act is a part of the cause
of action for lodging the complaint under Section 138 and that service of a notice
under clause (b) of the proviso to Section 138 was an essential requirement to be
complied with before a complaint could be filed. The Court observed Section 138
of the Act contains a penal provision. It is a special statute. It creates a
vicarious liability. Even the burden of proof to some extent is on the accused.
Having regard to the purport of the said provision as also in view of the fact
that it provides for a severe penalty, the provision warrants a strict
construction. Proviso appended to Section 138 contains a non obstante clause. It
provides that nothing contained in the main provision shall apply unless the
requirements prescribed therein are complied with. Service of notice is one of
the statutory requirements for initiation of a criminal proceeding. Such notice is
required to be given within 30 days of the receipt of the information by the
complainant from the bank regarding the cheque as unpaid. Clause (c) provides
that the holder of the cheque must be given an opportunity to pay the amount in
question within 15 days of the receipt of the said notice. Complaint petition,
thus, can be filed for commission of an offence by a drawee of a cheque only 15
days after service of the notice. What are the requirements of service of a notice
is no longer res integra in view of the recent decision of this Court in C.C.
155
Alavi Haji v. Palapetty Muhammed "

Judicial opinion on the question is split even among the High Courts in the
country. For instance, the High Court of Calcutta in Sandip Guha v. Saktipada
43
Ghosh , High Court of Orissa in Niranjan Sahoo v . Utkal Sanitary, BBSR, High
Court of Bombay in Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar and
Anr., High Court of Punjab and Haryana in Ashok Verma v. Ritesh Agro Pvt.
Ltd., and the High Court of Andhra Pradesh in N. Venkata Sivaram Prasad v.
Rajeswari Constructions , have taken the view that a complaint filed within 15
days of the notice period was premat ure and hence liable to be quashed.

155
Ibid.

142 | P a g e
The High Court of Allahabad on the other hand has taken a contrary view in
Smt. Hem Lata Gupta v. State of U. P & Anr., and held that cognizance taken
on the basis of a complaint filed within 15 days of the notice period was
perfectly in order if such cognizance was taken after the expiry of the said
period. To the same effect are the decisions of High Court of Allahabad in
Ganga Ram Singh v State of U.P. & Ors., High Court of Gauhati in Yunus Khan
v. Mazhar Khan, High Court of Rajasthan (Jaipur Bench) in Mahendra Agarwal
v. Gopi Ram Mahajan, High Court of Delhi in Zenith Fashions Makers (P)
Ltd. v. Ultimate Fashion Makers Ltd. and Anr., High Court of Madhya Pradesh,
Indore Bench in Bapulal v. Krapachand Jain, , High Court of Himachal
Pradesh in Rattan Chand v. Kanwar Ram Kripal and Anr., and High Court
of Madras in I.S.P. Solutions India (P) Ltd. and Ors. v. Kuppuraj .

It is noteworthy that the same High Court has in certain cases taken different
views on the subject. For instance the High Court of Jammu and Kashmir has in
Harpreet Hosiery Rehari v. Nitu Mahajan , held that dismissal of complaint on
ground that the same is premature is valid; while in S. Janak Singh v. Pritpal
Singh , it has held that cognizance taken on a complaint filed before expiry of 15
days of the notice, after the expiry of the said period is permissible. A similar
difference of opinion can also be seen in two decisions of the Karnataka
High Court in Ashok Hegde v. Jathin Attawan and Arun Hegde and Anr. v . M.J.
Shetty .

In view of the above conflicts of opinions, the following questions were referred to
Full Bench : -
(1 ) Can cognizance of an offence punishable under Section 138 of the
Negotiable Instruments Act 1881 be taken on the basis of a complaint
filed before the expiry of the period of 15 days stipulated in the notice
required to be served upon the drawer of the cheque in terms of Section
138( c) of the Act aforementioned ?156 And,
(2 (2 ) If answer to question No. 1 is in the negative, can the complainant be
permitted to present the complaint again notwithstanding the fact that the

156
Crl. Misc. Case No. 889 of 1996, decided on 13th February, 1998.

143 | P a g e
 period of one month stipulated under Section 142(b) for the filing of such
a complaint has expired?

The Hon'ble Supreme Court answered the above questions in Yogendra Pratap Singh
v. Savitri Pandey . Question no. 1 was answered in the negative. The Court opined
that on a conjoint reading of Section 138 and 142 ( B), there leaves no doubt that
no offence can be said to have been committed unlisten until the period of 1 5 days as
prescribed under clause (C) of the proviso to Section 138, has infact elapsed.
Therefore, a Court is barred in law from taking cognizance of such a complaint. It is
not opened to the court to take cognizance of such a complaint merely deposed on
date of consideration or taking cognizance thereof a period of 15 days from the date
on which the notice has been served on the drawer/ accused has elapsed. The court
thus did not approve the view taken in Narsing Das Tapadia and the judgements of
various High Courts following Narsing Das Tapadia. 157

157
Crl. Misc. Case No. 889 of 1996, decided on 13th February, 1998.

144 | P a g e
 CHAPTER-VIII

REMIDES OF DISHONOUR OF CHEQUE WITH LATEST AMENDMENT IN NI

ACT

Dishonor of Cheque

Remedies

1. To file a civil suit

2. To file a complaint under section 138 of the Negotiable Instruments Act, 1881

3. To file complaint under section 420 for cheating under the Indian Penal Code

In case a person has filed suits for recovery, he is not precluded from filing a complaint
under section 138 of the Negotiable Instruments Act and section 420 of the Indian Penal
Code. Both remedies may be simultaneously possible. A civil suit cannot debars the criminal
prosecution.158

Dishonor of cheque, also known as a rejection of cheque or check bounce, comes under the
ambit of Section 138 of the Negotiable Instruments Act, 1881. The term ‘negotiable
instrument’ usually refers to a piece of paper which entitles the holder to claim money, and
sometimes even goods. In the realms of the Negotiable Instrument Act, a ‘negotiable
instrument’ is a promissory note, bill of exchange or cheque. In this article, we look at
cheque bounce and its remedies in India.

Cheque Bounce Notice Format

Cheque

Section 6 of the Negotiable Instruments Act, 1881, regards a cheque as a bill of exchange

158
R Singh, the law relating to negotiable instruments
145 | P a g e
drawn on a specified banker, which is not expressed to be payable except on demand. It
includes the electronic image of a truncated cheque and a cheque in electronic form.

A Cheque in Electronic Form

A cheque in electronic form is a cheque which reflects the exact mirror image of a paper
cheque. It is generated, written and signed through digital means, thereby ensuring the
minimum safety standards through the use of digital signature (with or without biometrics
signature) and asymmetric cryptosystem.

Truncated Cheque

A truncated cheque is a form of a cheque which is truncated during the course of a clearing
cycle, either by the clearing house or by the bank.

Dishonor of Cheque

Section 138 of the Negotiable Instrument Act has provided a comprehensive definition for
dishonor of cheque, which has quoted below for your reference:

“Where any cheque drawn by a person on an account maintained by him with a banker for
payment of any amount of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned by the bank
unpaid, either because of the amount of money standing to the credit of that account is
insufficient to honour the cheque or that it exceeds the amount arranged to be paid from
that account by an agreement made with that bank, such person shall be deemed to
have committed an offence and shall, without prejudice. to any other provision of this
Act, be punished with imprisonment for a term which may extend to two years, or with fine
which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless-

(a) the cheque has been, presented to the bank within a period of six months from the

146 | P a g e
date on which it is drawn or within the period of its validity, whichever is earlier;159

(b) the payee or the holder in due course. of the cheque as the case may be, makes a
demand for the payment of the said amount of money by giving a notice, in writing, to
the drawer of the cheque, within thirty days of the receipt of information by him from the
bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the
payee or, as the case may be, to the holder in due course of the cheque, withi fifteen days
of the receipt of the said notice.”

Ground for Dishonor

The world is increasingly getting commercial and transactions through cheque are
performed on a frequent basis. Though digital innovations play a central role in certain
transactions, not all formal transactions are pursued by digital means. This increases the
likelihood of cheque transactions.

The usage of cheques requires intricate handling, as the cheque can easily be dishonored, be
it due to deliberate errors or trivial mistakes.160

A cheque could be dishonored for the following reasons:

1. Insufficient funds – if the drawer of the cheque doesn’t have adequate funds for the
transaction.
2. Account Closed – if the account doesn’t hold sufficient funds on the particular date
of honoring though appropriate balance was credited into the account on the date of
issue of cheque
3. Stop Payment Instruction – if the issuer of cheque presents a ‘stop payment’
instruction.
4. Name of Payee – if the name of the payee lacks clarity or isn’t mentioned.
5. Account Number – if the account number is missing or lacks clarity.

159
R Singh, the law relating to negotiable instruments
160
Justice Ranjana Prakash Desai, BM Prasad & Manish Mohan, Khergamvala on the Negotiable Instrument
Act,(21st Edition, 2013).
147 | P a g e
 6. Case of Insolvency – if the bank is intimated of the death, lunacy or insolvency of
the drawer.
7. Mismatch of Data – If the amount specified in words and figures mismatches with
the other.
8. Refer to Drawer – if the bank account of the respondent doesn’t hold sufficient
funds.
9. Not a clearing number –when the cheque isn’t presented with the bank on which it
was drawn.
10. Irregular signature – if the signature of the supposed drawer doesn’t match with the
specimen signature held by the bank.
11. Alterations and overwriting –in case of any alterations or overwriting (no
alterations or overwriting will be accepted even with the signature of the drawer).
12. Post-date Cheque – a cheque cannot be presented to the bank before the actual date
of transfer of funds, and the same is held as a ground for dishonor of cheque.
13. Stale cheque – a cheque can be presented to the bank for until three months from the
date mentioned in the cheque, post which the cheque will be dishonored.
14. Frozen Account – an account is frozen on the direction of the government or court,
in which case the bank will dishonor the cheques bearing the particular account
number.

Types of Dishonor

Dishonor of cheque could occur in the form of:

 Dishonor of bill of exchange by non-acceptance.

 Dishonor of promissory note, bill of exchange or cheque by non-payment.

Dishonor by Non-Acceptance

A bill of exchange is classed as dishonored by non-acceptance if the drawee (not being a

partner) makes a defaulted acceptance of the bill. The case is also implied where the
presentment is excused and the bill is not accepted.161

Note: The bill may be treated as dishonored if the drawee is incompetent to contract and on
account of disqualification of acceptance.
161
Justice Ranjana Prakash Desai, BM Prasad & Manish Mohan, Khergamvala on the Negotiable Instrument
Act, (21st Edition, 2013).
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Dishonor of Promissory Note, Bill of Exchange or Cheque by Non-Payment

A promissory note, bill of exchange or cheque is deemed to be dishonored if the maker of

the note, the acceptor of the bill or drawer of the check commits any default in payment. A
dishonor by non-acceptance could only be in the form of a bill of exchange, but that of non-
payment could be in the form of any negotiable instrument, which includes a bill of
exchange.

Ingredients of Dishonor

The following are the essential ingredients of a check bounce:

 Drawing of cheque by a person for reasons of any debt or liability.

 Presentation of cheque to a bank within six months of the date of drawing or within
the period of validity, whichever is earlier.
 Return of cheque unpaid by the bank.
 A notice or intimation is issued to the payee or holder demanding him/her to make
the requisite payment.
 Failure of the drawer to remit the required payment to the payee or the holder in due
course of the cheque within 30 days of the receipt of the notice.

Consequences of a Cheque Bounce

If a check is dishonored, the bank issues the payee with a ‘cheque return memo’ stating the
reason for such dishonor. The payee may decide on re-submitting the cheque so that it gets
honored the second time around but must be wary of the consequences of successive
dishonors as it will entitle the payee to legally prosecute the drawer, though not in all cases.
The drawer can only be sued for a cheque bounce if the amount mentioned in the cheque is
towards the discharge of a debt or any other liability of the defaulter towards the payee, and
not for the issue of gifts or unlawful purposes of any kind.

The payee can initiate legal proceedings against the drawer after offering him/her with an
opportunity of repaying the cheque amount immediately by issuing a written notice for the
same. If the payer is unable to make the payment within 30 days of the receipt of notice, the
payee is entitled to file a criminal complaint under Section 138 of the Negotiable
Instruments Act. A case against cheque bounce can be either made directly by the payee or
through a power of attorney.
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Penalty/Imprisonment

A cheque bounce will attract penalties on the hands of both the drawer and payee. If the
cheque so dishonored is against the repayment of any loans, the concerned person will be
forced to remit the necessary late payment charges and/or face incarceration of two years.

Annulling of Facilities

The concerned bank of the drawer may stop the chequebook facility and close his/her
account for repeat offenses under this provision.

Damage to Credit Score

A cheque bounce will potentially hamper the credit history of the drawer, as the financial
institutions will make a report to the payment bureaus on the instance of any default.

Is it Compoundable?

The answer for the same is in the affirmative, as defaults in the nature of dishonor of cheque
can be settled out-of-court as per the Negotiable Instruments Act, 1881.162

Cause for Compensation

The court is vested with the rights of granting compensation to the payee under Section 357
of the Code of Criminal Procedure, 1973 for any defaults of the drawer. No limits have been
prescribed for the compensation till date.

Time-frame for Making Complaints

The courts would take the cognizance of offenses under Section 138 upon receiving a
complaint made by the payee in due course of the cheque. The complaint must be issued in
writing within a month of the date of the offense. However, an amendment in the year 2002
has facilitated the filing of complaints after this period, if the complainant manages to satisfy
the court that the cause for the delay was on reasonable grounds. The complaint must not be

162
Justice Ranjana Prakash Desai, BM Prasad & Manish Mohan, Khergamvala on the Negotiable Instrument
Act, (21st Edition, 2013).
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made to any court which is inferior to a Metropolitan Magistrate or a Judicial Magistrate of
the first class.

Offense by Companies

If a company turns out to be the defaulter of a cheque bounce, the person responsible for the
conduct of the company during the issuance of the cheque, as well as the company, will be
considered guilty of the offense. More details pertaining to this aspect can be found here.

False Case of Cheque Bounce

Certain business dealings may prompt the drawee to present a cheque to the other party as a
security. However, the payee may fraudulently deposit the cheque offered as security despite
successfully completing the earlier transaction and impose a case of cheque dishonor on the
drawer. Given this scenario, the drawee must prove that the secondary cheque was given by
way of security and no debts existed at any point in time.

AMENDMENT IN NEGOTIABLE INSTRUMENT ACT, 2017:

The commonwealth of nations in almost all jurisdictions have codified law relating to
negotiable instruments in Bills of Exchange Act, e.g. Bills of Exchange Act 1882 in the UK,
Bills of Echange Act 1908 in New Zealand , Bills of Exchange Act 1909 in Australia, the
Negotiable Instrument Act, 1881 in India and the Bills of Exchange Act 1914 in Mauritius.
The Bills of Exchange Act defines a bill of exchange as: An unconditional order in writing ,
addressed by one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum
certain in money or to the order of a specified person, or to bearer.163
HISTORICAL DEVELOPMENT OF LEGISLATION
The earliest attempt to codify a law relating to mercantile usages was made in France as
earlyas in the year 1818 and the French Commercial Code was later adopted as a model by
many other countries. In England, the movement for such a codification of the law relating
to merchants usages materialized only in 1880when Sir Mc Kenzie Chalmers drafted a Bill
which was later enacted as Bills of Exchange Act, 1882. This English Act had the distinction

163
R Singh, the law relating to negotiable instruments,
http://shodhganga.inflibnet.ac.in/bitstream/10603/7935/7/07_abstract.pdf.
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of containing a provision by way of s. 13(2) which stated that a bill in not invalid by reason
that it is antedated or post- dated.
The history of law relating to Negotiable Instruments as applicable in India as codified in the
pre- independence era, is a long one. The 3rd Indian Law Commission originally prepared a
draft of this legislat ion in 1866. Thereafter, the draft legislation was introduced in the
Council in December, 1867and the Council referred it to a Select Committee. This draft
legislation met with strong objections raised by the mercantile community on multifarious
aspects, including the aspect of certain deviations from English Law which the Legislation
contained. This led to the initial draft of legislation being subjected to redrafting in 1877 so
as to meet the objections and demands of mercantile community. After needful deliberation
on this draft legislation, including criticism by the Local Governments, the High Courts and
the Chambers of Commerce, the draft bill was revised by a Select Committee. In spite of
this, the draft Bill could not attain a finality. In 1879, Mr. Arthur Philips, the then Law
Secretary and a Member of the Calcutta Bar, redrafted the Bill. This Bill, after passing
through the Select Committeemore than once, was again referred to anew Law Commission
in 1879.3 On the recommendation of the new Law Commission, the Bill was re- drafted and
again it was sent to a Select Committee which adopted most of the additions recommended
by the new Law Commission. The draft thus prepared for the fourth time was introduced in
the Council and was passed into law in 1881 being the Negotiable Instruments Act, 1881.

ORIGIN OF NEGOTIABLE INSTRUMENT ACT

In the ancient times, trade was carried along the routes which were insecure and traders were
usually robbed of their wealth by roving pirates of sea and by marauding robbers on land.
This was the time when Bills of Exchange, an idea of exchange came into existence. Letters
of Credit, generally called Bills of Exchange from a merchant of one country to his debtor
who was a merchant of another country, were issued, requiring the debt to be paid to a third
person who carried the letter of credit to a place where the debtor resided. A bill of exchange
was, thus originally an order to pay a trade- debt, and a system of such bills afforded a
convenient and facile way for the payments or debts in one country due to a person in
another, without the danger of encumbrance of carrying money from one place to another.164

WHAT IS NEGOTIABLE INSTRUMENT?

164
R Singh, the law relating to negotiable instruments,
http://shodhganga.inflibnet.ac.in/bitstream/10603/7935/7/07_abstract.pdf.
152 | P a g e
Negotiable instrument is acertain type of document which is used in commercial transaction
and includes a promise to pay a specific amount to the bearer of the document. It is basically
a transfer of debt from one party to other. Some of the examples where the true owner
transfers contract or engagement by simple delivery of instrument are- a cheque, a
promissory note, a bill of exchange.
OBJECTIVE AND SCOPE OF THE ACT
The Negotiable Instruments Act, 1881 was enacted so as to legalise the system of negotiable
instrument of passing passing from hand to hand negotiation and to make the world of trade
and commerce less complicated. Had these instruments such as cheque, bills of exchange
not been there the situation in the commercial world would have been unsystematic and
complicated as it is impracticable for the trading community to carry on with it the bulk of
currency in force.

INTRODUCTION TO DISHONOR OF CHEQUE- A CRIMINAL OFFENCE; SEC. 138

Introduction of Section 138 of Negotiable Instrument Act ushers in anew healthy
commercial morality through the instrumentality of penal law. Section 138 deals with the
cases of cheque dishonor where any cheque drawn by one person to pay an amount to other
person for any debt or liability is returned by the bank unpaid because of insufficient funds
or it exceeds the amount arranged to be paid from that account by an agreement made by the
bank. There are certain essential requirements for filing a criminal complaint against the
drawer in case of cheque dishonor such as; the cheque is to be presented to the bank within
months from the date on which it is drawn or within the period of its validity, 30 days
demand notice is to be issued by the payee or the holder in due course on receipt of
information by him from the bank regarding the dishonor of the cheque, the drawer of said
cheque fails to make the payment of the said amount of the money to the payee or the holder
in due course within 15 days of the said notice and the most essential one is that the debt or
liability against which cheque was issued is legally enforceable.

AFTERMATH OF AMENDMENTS IN NEGOTIABLE INSTRUMENT ACT, 1886

The act originally drafted in 1886, produced in 1967 has also been updated by fabricating
various amendments with the development in commercial world.May amendments have
been produced since 1886 marking a step forward towards achieving the objective of

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Negotiable Instrument Act so as to inculcate in the efficacy of banking system and
credibility of business in commercial world.165
In KSL & Industries Ltd. V. Mannalal Khandelwal, the Bombay High Court observed:
“Section 138, in fact, has been introduced to prevent dishonesty on the part of the drawer of
negotiable instrument to draw a cheque without sufficient funds in the account maintained
by him in bank and induce the payee or holder-in-due-course to act upon it. In other words,
these provisions have been introduced to give greater credibility to our trade, business,
commerce and industry, which is absolutely imperative in view of the growing international
trade and business. The constitutional validity of these provisions has been upheld by the
Supreme Court.”

A comparative study as to know the situation before ad after amendments been made to the
act and its impact on commercial world. In Goa Plast (P) Ltd. v. Chico Ursula D’Souza , the
Supreme Court, while considering the object and the ingredients of sections 138 and 139 of
the Act, observed as under: “The object and the ingredients under the provisions, in
particular, sections 138 and 139 of the Act cannot be ignored. Proper and smooth
functioning of all business transactions, particularly, of cheques as instruments, primarily
depends upon the integrity and honesty of the parties. In our country, in a large number of
commercial transactions, it was noted that the cheques were issued even merely as a device
not only to stall but even to defraud the creditors. The sanctity and credibility of issuance of
cheques in commercial transactions was eroded to a large extent. Undoubtedly, dishonor of a
cheque by the bank causes incalculable loss, injury and inconvenience to the payee and the
entire credibility of the business transactions within and outside the country suffers a serious
setback. The Parliament, in order to restore the credibility of cheques as a trustworthy
substitute for cash payment enacted the aforesaid provisions. The remedy available in a civil
court is a long drawn matter and an unscrupulous drawer normally takes various pleas to
defeat the genuine claim of the payee.”166

THE NEGOTIABLE INSTRUMENTS (AMENDMENT ), 2002

With the increasing cases of dishonor of cheque and their increasing pendency the
legislature
made an amendment in 2002 so as to plug the loopholes of the Negotiable Instrument Act.

165
In KSL & Industries Ltd. V. Mannalal Khandelwal
166
In Goa Plast (P) Ltd. v. Chico Ursula D’Souza
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With the sense of achieving the goal of speedy trial the amended act enabled a Judicial
Magistrate or magistrate of the First Class to conduct the trial. It also states that the trial is to
be completed within 6 months of filing the complaint, also it empowers the Magistrate to
pass a sentence for imprisonment for a term not exceeding twice the amount of cheque
notwithstanding anything contained to the contrary in CrPC.

NEW DIMENSION TO LAW- Dashrath Rupsingh Rathod v. State of Manaharashtra Anr.

In Dashrat Rathod Case the Hon. Supreme Court observed that :"Courts are enjoined to
interpret the law so as to eradicate ambiguity or nebulousness, and to ensure that legal
proceedings are not used as a device for harassment, even of an apparent transgressor of the
law. Law's endeavor is to bring the culprit to book and to provide succour for the aggrieved
party but not to harass the former through vexatious proceedings. The court held that, the
territorial jurisdiction according to section 138 or under the act should exclusively be
determined and considered by place/location of the offence. The return of the cheque by the
drawer bank only constitutes commission of offence under section 138. Hence, the courts
within which drawer bank is located will only have the jurisdiction to try the case.

THE NEGOTIABLE INSTRUMENTS (AMENDMENT ), 2015

The Negotiable Instruments (Amendment) Bill, 2015 was introduced in Lok Sabha on
May 6, 2016.
The Act Specifies conditions and circumstances under which complaints for cheque
dishonor under Article 138 can be filed,but the Act does not mentions about the territorial
jurisdiction of the courts where complaints is to be filed.
The amendment inserted Section 142(2), a new clause 142A in order to ensure a fair
and speedy trial.
This amendment amends the Act to state that cases bouncing of cheques can be filed
only in court whose jurisdiction the bank branch of the payee (person who receives
the cheque) lies.
If a complaint against a person issuing a cheque has been filed in the court with the
appropriate jurisdiction, then all subsequent complaints against that person will be filed in
the same court, irrespective of the relevant jurisdiction area.
If more than one case is filed against the same person before different courts, the case
will be transferred to the court with the appropriate jurisdiction.
The Bills also amends the definition of „cheque in the electronic form‟. Under the Act, it
was defined as a cheque containing the exact mirror image of a paper cheque and generated
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in a secure system using a digital signature. The definition has been amended to mean a
cheque drawn in electronic medium using any computer resource and which is signed in a
secure system with a digital signature, or electronic system.167

One can conclude form the above discussion that the evolution of the Negotiable
Instruments Act and the jurisdictional debate of cheque dishonor underSection 138, it can be
analysed that the amendments which were made by the legislature was a necessity for the
Courts and Government to adopt such landmark amendments in law in order to provide
justice. But even after these amendments the problem of delayed disposal was not solved
which gave rise to introduction of interim compensation in order to reduce the suffering
caused to courts and parties due to the pendency of cases and to stop the injustice been
caused.
BRIEF OF PROPOSED AMENDMENT
The Negotiable Instrument Act was originally drafted in 1866 by the 3rd Indian Law
Commission and introduced in December , 1867 in the council. Negotiable instrument act
was enacted so as to bring development in trade and commerce sector and asa result from a
dishonored cheque cases as dishonor of cheque by bank causes incalculable loss, injury and
inconvenience to the payee and the credibility of issuance of cheque is also being eroded to
a large extent.
The law pertaining to negotiable instrument act is not the law of one country or of
onenation; it‟s the law of the commercial world in general which was enacted for
convenience to traders and so as to regulate the dealings of merchants and mariners in all
commercial countries of the civilized world so as to establish justifiable practice in
commercial world. But the huge pendency of cases is causing injustice to the payee of a
dishonored chequewho has to spend considerable time and resources in court proceedings
also such delays compromise the sanctity of cheque transactions as stated in the statement of
objects and reasons of the Bill of 2017.168

VIOLATION OF CONSTITUTIONAL RIGHT FRAMEWORK: DELAYED

PROPOSAL AND COMPLEX PROCEDURE

A fair trial implies a speedy trial. The Constitution expressly doesn‟t consider right to
speedy trial a fundamental right but is implicit in the broad sweep and content of Article 21

167
S. Krishnamurthi Aiyar, Law Relating to The Negotiable Instruments Act,1 (Tenth Edition, 2009).
168
State of Maharashtra v. Champalal Punjaji Shah AIR 1981 SC 1675.
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of the Constitution as was held by Supreme Court in the case of Surinder Singh v. State of
Punjab. The right to speedy trial was first recognized in Hussainara Khatoon case. The chief
objective of bringing Section 138 is to gain faith of litigants in the efficacy of banking
operations and credibility in transaction and trade business on negotiable instruments. Also
this section has been introduced to prevent any fraud or dishonesty on the part of drawer of
negotiable instrument act. But the objective of greater credibility to our trade, commerce,
business and industry is not been achieved due to the problem of delay in disposal of cases.
The Constitution of India under Article 21 guarantees every citizen right to life and personal
liberty, right to equality under article 14, right to freedom etc. rule of law states that all me
are equal before law but when it comes to the governing power of country i.e. law it fails to
implement this principle in judicial procedure. Judicial process being very complex, costly
and time taking puts poor at a distance from practicing their right.

Article 14 guarantees equality before law and equal protection of laws and this equal
protection needs to be given to the one who are suffering from such inequalities as
mentioned above by providing easy access of justice to them but in courts which is
considered a place where everyone is granted justice has become a spot of injustice as in
courts to get justice one has to go through costly and complex procedures of litigation and it
becomes difficult for a poor litigant who barely able to feed himself. Apart from all this the
problem of pendency of case has made it more miserable for litigants to seek grievance and
get justice through courts.

For whatever reason may it be but the delay in diposal of cases and other factors have
defeated the purpose and objective for which the people approach the courts for their
redress. “justice delayed is justice denied and at the same time justice hurried is justice
buried” Delay in disposal of cases causes hardship not only to the accused but also victim
has to suffer for the same. The Preamble of the Constitution guarantees and secures every
citizen social, economic and political justice, but this promise of Constitution cannot be
fulfilled unless and until the three organs of the state i.e. legislature, executive and judiciary
join their hands and work together for finding ways to provide every litigant easy and
accessible justice.169

169
Government of India, Law Commission of India, Report No. 213, Fast Track Magestrial Courts for
Dishonored Cheque Cases, November 2008: The Law Commission undertook this subject suo motu in view of
the above circumstances and in pursuance of one of its terms of reference “to suggest suitable measures for
quick redressal of citizens grievances, in the field of law”.
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AMENDMENT IN NEGOTIABLE INSTRUMENT ACT, 1881- NEED OF HOUR
Since 1881 the government has come up with a number of amendments to the Negotiable
Instrument Act, 1881 but still the problem with criminal offence of cheque dishonor remains
the same. Seeing the current situation of pending cases and to do away with unnecessary
litigation government came up with the concept of interim compensation so as to save the
considerable time and resources which is been used at the time of court proceedings.
In the present time where already the use of paper currency is getting reduced day by day,
it becomes crucial for the government to redouble people‟s faith in such instruments.
Also a huge pendency of cases causes loss to traders, MSME sectors and to the
businessmen who have to undergo in the complex and a long procedure in case of cheque
dishonor, also the pendency has increase due to the filing of large amount of false cases,
interim compensation is a kind of relief given to the drawer and drawee so as to recoup the
loss suffered by party.
The proposed amendment also adds a provision which states that if drawee already
convicted by trial court will have to pay 20% of the amount of cheque as compensation
awarded by trial court during conviction to the Appellate court. In case if the drawer gets
acquitted during trail or in the Appellate court, the court will pass order directing
complainant to return the interim compensation with interest rate, this amount has to repaid
within 60 days. Both of these provisions are introduced in order to reduce false cases
involving frivolous complaints. Previously procedure of filing a case being simple and less
costly served as an invitation to the one who wasted the time of court by filing such cases.
The introduction of such provision may also be unfavorable for the ones who can‟t afford to
pay huge amounts and gets trapped into the judicial complexity.170
As one can see in the above data India is facing a lot of problem in reducing the
continuously increasing pendency of cases. the proposed amendment is a step towards
reducing this problem and to give every citizen of India their constitutional right of speedy
disposal.

FIXING THE INTERIM COMPENSATION, PRACTICALLY APPLICABLE OR

NOT?
Interim compensation of 20% as proposed is not justifiable as if seen practically the amount
of cheque being dishonored varies from case to case, it may be 50,00,00,000 in a case and
50,000 in other one. So the point which needs to be discussed is whether the decision of

170
http://www.prsindia.org/billtrack/the-negotiable-instruments-amendment-bill-2015-3778/.
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fixing the interim compensation will be practically applicable and will it fulfill the objective
of the amendment and solve the problem of delayed disposal.
The percentage of compensation needs to be fixed according to the amount of cheque which
is dishonored, if the amount of cheque is above 1 crore then the amount of compensation can
be fixed as 2%-5% and if the amount of cheque is in lakhs then the compensation percentage
can be set as 7% - 10%, in case if the amount is below 1 lakh then the compensation granted
can be till 20%. By this one can conclude that there needs to be a certain criteria for the
percentage of interim compensation to be fixed, this percentage can‟t be generalized it needs
to be set accordingly.
Also another point which needs to be dealt is that of compensation which is being paid back
by the complainant with an interest rate in case of false case, this amount of compensation
being paid by complainant needs to be increased so as to reduce the false cases. The amount
of compensation to be paid by defaulter needs to be doubled of the amount of compensation
being paid by drawer in order to make the defaulters stop this illegal practice and to save
court‟s precious resources and time.171
Every law needs some modification so as to cope up with the developing society and so as to
head towards the objective of making society free from crime. Devising amendments in law
from time to time are certain steps taken by legislature to make society more developed
whether it be the amendment made by the legislature in case of Nirbhaya or be it in
constitution law, company law and other amendments made by legislature in earlier times.
All of these amendments produced brought a change in the working system of society
whether it be a massive or minor one. Amendment to laws are made due to cases which
judiciary deals with on day to day basis and the required need of change in law so as to
make the society more developed. The Negotiable Instrument Act was enacted to ensure the
credibility of trade, commerce and business and the amendment proposed is to restore this
credibility which has been lost due to certain factors like delayed disposal in cases related to
cheque dishonor. Same is the case with the negotiable instrument act in which a bill has
been introduced for amendment by observing the cases arising on day to day basis related to
cheque dishonor. The said act has been amended so as to edify the negotiable instrument act
and to achieve its objective for which the act was formed.

The Constitution guarantees every litigant a fair and speedy trial under Article 21. Any delay
in the judicial proceedings of court is an infringement of the rights of a citizen and can also

171
http://www.prsindia.org/billtrack/the-negotiable-instruments-amendment-bill-2015-3778/.
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result in grave miscarriage of justice. Judiciary which is one of the vital organs has a special
role to play in the task of achieving socio- economic goals and for that it needs to be aware
of the social and economical changes around the nation for achieving the goal of socio
economic justice for the people. The Indian Judicial system has to face challenges on day to
day basis whether it be the matter of disposal of cases or the constant challenge of
developing law in accordance with the changing time and society. So as to survive in this
challenging world, the need of hour is that judiciary needs to make the entire judicial
machinery more accessible to litigants by utilizing all the available resources at their
maximum level so as to improve the service to the public and also this may solve the
problem of delays in disposal, making courts more efficient and less dismaying and easily
approachable by every section of the society.
Negotiable Instrument Act: 2018 Amendments

INTRODUCTION
The Negotiable Instruments Act, 1881 (“the Act”) was enacted to characterize and define the
law relating to authoritative records like Promissory Notes, Bills of Exchange and Cheques.
Over the years, the Act has undergone amendments to deal with the changing times, keeping
in view the common goal of rapid disposal of cases identifying with the offence of
dishonour of cheques. However, the pendency ratio of cheque dishonour cases still remains
a critical issue and adversely affects the cash flows of businesses particularly Small &
Medium sized Enterprises (“SMEs”).

The Central Government has notified amendment to one of the most essential legislation i.e.
the Negotiable Instrument (Amendment) Act, 2018. The Amendment
incorporates Section 143A in the Negotiable Instrument Act, 1881 which provides for
the Power to provide for interim compensation to the complainant.

The insertion of new provisions in the NI Act aims at addressing the issue of undue delay in
finality of cheque dishonor cases. It is believed that the amendment will strengthen the
credibility of cheques and help trade and commerce in general.

It is observed that one of the main reasons that plagues the system, roots down to the
malafide strategies of corrupt drawers of dishonoured cheques towards evading and abusing
the process of law, eventually harming the innocent payees of the dishonoured cheques.

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 With a view to curb such practices, the Lok Sabha passed Negotiable Instruments
(Amendment) Bill, 2017 on July 23, 2018, Rajya Sabya passed the Bill on July 26, 2018 and
subsequently the Negotiable Instruments (Amendment) Act, 2018 (“Amendment Act”) was
notified on August 02, 2018. The amended provisions introduced are likely to contribute
towards reducing the number of cheque bounce cases pending in the courts. This will
provide immediate relief to the payees of dishonoured cheques, the disposal of which
consumes considerable time and resources.172

KEY FEATURES OF THE AMENDMENT ACT:

 Section 143A has been inserted which essentially empowers the court trying the offence
under Section 138 of the Act, to direct the drawer of the cheque to pay interim compensation
to the Payee in situations of a summary trial or summons case wherein the drawer pleads to
be “not guilty”. This new provision seeks to cap interim compensation to 20% of the cheque
amount.173
 Another provision introduced as Section 148 specifies that in case the drawer files an appeal
against his/her conviction, the Appellate court has the power to direct the drawer to deposit a
minimum amount of 20% of the fine or compensation that was awarded by the Trial court.
The Appellate Court may direct to release the amount deposited by the appellant to the
complainant at any time during the pendency of the appeal. This amount shall be in addition
to the compensation paid at the trial stage.
 The interim compensation at the trial as well as the deposit amount at the appellate stage (as
the case may be) shall be paid within 60 days from the date of the order by the court trying
the offence or the appeal. The concerned court may further extend this period by an
additional time of 30 days’ subject to the sufficient reasons being shown.
 In case of acquittal of the drawer/ appellant by the Trial Court or the Appellate Court, (as the
case may be) the payee/complainant shall be directed to repay the interim compensation or
amount deposited (as maybe applicable), to the drawer/appellant along with such interest as
may be fixed by Reserve Bank of India at the beginning of the relevant financial year. This

172
Negotiable Instrument Act: 2018 Amendments

173
Authored by Gagan Kumar, Runjita Das and Vidushi Khaitan
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amount shall be repaid within 60 days of the court’s order and this period may be further
extended by another 30 days’ subject to sufficient reasons being shown.174

The present Amendment is aimed to reduce the pendency ratio of cheque bounce cases and
appears to be a step taken towards improvement in the current scenario. The amended
provisions could pave the way towards enhancing the trade and commerce industry and
allowing various lending institutions to promote and stimulate finances in the economy. It is
also likely to strengthen the credibility of issued cheques which will largely contribute
towards building business relations.
At the same time, it cannot be ignored that although the amended provisions are likely to
bring in better efficacy and credibility of cheques drawn, yet the offence is still being
categorized as a bailable offence with a maximum imprisonment of 2 years, if convicted.
This, in our opinion may call for further introspection and more stringent provisions.
However, the essence of the amended provisions which is drawn towards faster disposal
may come out as a boon to the present system. Although the applicability of the amended
provisions - whether prospective or retrospective, is not categorically specified, yet it
appears that the nature of the same are more procedural in nature, considering the fact that
the existing rights, obligations, duties of either party existing at the time of commission of
offence, is not altered or effected vide the amended provisions. With the settled position that
procedural laws are retrospective in nature unless otherwise intended or specified, the
amended provisions, which essentially intends to boost the present manner of
implementation of the existing rights and duties of the parties at the time of commission of
offence, would also have retrospective application. Considering such a view, the pending
litigations in addition to the future ones may also get an impetus and a wave of relief to the
genuine party.175
To sum up, we can say that although the Amendment Act is not without challenges yet it
largely appears to cater to its objective of expediting the disposal of cases and also bringing
wave of relief to the genuine holder of bounced cheques.

175
Authored by Gagan Kumar, Runjita Das and Vidushi Khaitan
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 CHAPTER VIII

CONCLUSIONS AND SUGGESTIONS

The utility of any research depends upon the amplitude of effects the problem
has on society. As the present topic deals with dishonouring of cheques in
India, its utility could be realized only by studying the impact of the existing
law on different spheres of life i. e. economic, political, social, criminal
justice system etc. and by pondering over the changes and amendments
necessitated in the existing legal framework. 176

In the case of Rangachari (N.) v. Bharat Sanchar Nigam Ltd , the Apex Court
pointed out that the l aw merchant treated negotiable instruments as
instruments that oiled the wheels of commerce and facilitated quick and
prompt deals and transactions. This continues to be in the position as now
recognized by legislation, though possibly a change is taking place with the
advent of credit cards, debit cards and so on. It was said that negotiable

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instruments are merely instruments of credit, readily convertible into money
and easily passable from one hand to another. With expanding commerce,
growing demand for money could not be met by mere supply of coins and the
instrument of credit took function of money which they represented and thus
became by degrees, articles of traffic. A man dared not dishonor his o wn
acceptance of bill of exchange, lest his credit be shaken in the commercial
world.

Conclusion

After the introduction of Chapter XVII in the Negotiable Instruments Act,

1881 by the Banking, Public Financial Institutions and Negotiable
Instruments Laws (Amendment) Act 1988 and further exhaustive amendments
by the Negotiable Instruments ( Amendment and Miscellaneous provisions)
Act of 2002, it was anticipated that the problem relating to the dishonour of
cheques shall be minimised to a great extent and the people shall realize that
in case of dishonour of the cheques issued by them they may land in trouble
and be constrained to suffer penal consequences. The Negotiable Instruments
(Amendment) Bill, 2015 was introduced in the Lok Sabha on May 6, 2015.
The Bill seeks to amend the Negotiable Instruments Act, 1881. The Act
defines promissory notes, bills of exchange, cheques and creates penalties
for issue s such as bouncing of cheques. The Act specifies circumstances
under which complaints for cheque bouncing can be filed. However, the Act
does not specify the territorial jurisdiction of the courts where such a
complaint is to be filed. The Bill amends the Act to state that cases of
bouncing of cheques can be filed only in a court in whose jurisdiction the
bank branch of the payee ( person who receives the cheque) lies. If a
complaint against a person issuing a cheque has been filed in the court with
the appropriate jurisdiction, then all subsequent complaints against that person
will be filed in the sam e court, irrespective of the relevant jurisdiction area. If
more than one case is filed against the same person before different courts,
the case will be transferred to the court with the appropriate jurisdiction. The
Bills also amend the definition of ‘cheque in the electronic form’. Under the
Act, it was defined as a cheque containing the exact mirror image of a paper
cheque and generated in a secure system using a digital signature. The
definition has been amended to mean a cheque drawn in electronic medium

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using any computer resource and which is signed in a secure system with a
digital signature, or electronic system. 177

The Negotiable Instruments ( Amendment) Act 2015 came in to force with

retrospective effect. According to the notification published in the official
Gazette dated 26.12.2015 the Amendment shall be deemed to have come into
force on the 15th day of June 2015. Rajya Sabha passed the Negotiable
Instrument ( Amendment) Bill 2015 on 7 th December 2015. Lok Sabha had
passed the Bill in August 201 5. The Act replaced Negotiable Instrument (
Amendment) Ordinance which was re-promulgated on 25th September 2015.

The Cabinet, in December 2017, further approved an amendment to the

current law to allow for payment of an interim compensation in cheque
dishonour cases with a view not to allow unscrupulous elements holding
payments, pending long trial, people in the know said. An amendment to the
Negotiable Instruments Act will allow a court to order for payment of an
interim compensation to those whose chequ es have bounced due to
dishonouring parties, a move aimed at promoting a less cash economy. The
amendment is likely to be introduced in the ongoing winter session of
parliament. Law minister Ravi Shankar Prasad, while briefing the media
about the cabinet’ s decisions, said amendment to Negotiable Instruments Act,
1881 has been approved. The minister, however, did not provide details
about the proposed amendment. However, people familiar with the matter said
the amendment would enable the court to order inter im compensation to the
payee of a cheque, a part of the cheque amount at the trial stage. If the drawer
is acquitted, the court may direct the payee to repay the amount paid as interim
compensation with interest, they said. Similarly, appellate courts would be
enabled to order the appellant to deposit a part of the compensation awarded
by the trial court at the time of filing appeal. The amendment has been
proposed to help trade and commerce, particularly the micro, small and
medium enterprises (MSME) sector, and in order to increase the credibility
of the cheque as a financial instrument, people in the know added. Dishonour
of cheques due to inadequate funds in the account of the drawer of the cheque

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or for other reasons causes lot of distress in the trade, business and MSME
sectors. Dishonouring of cheque causes incalculable loss and inconvenience
to payees and “erodes the credibility” of cheques to a large extent. The
cabinet, officials said, considered the proposal to amend the Negotiable
Instruments Act to “address various representations” from the public as well as
the trading community regarding the “injustice caused to payees” as a result of
pendency of cheque dishonour cases. 178

“The common themes in such representations are delay tactics by

unscrupulous drawers of dishonoured cheques, relatively easy filing of
appeals and obtaining stay on proceedings,” they said. A payee of a
dishonoured cheque has to spend considerable time and resources in court
proceedings to realise money due to him. The amendment is in line with the
government’s push to make India a less cash economy. It is to be mentioned
here that cheques are an integral part of the payments landscape, and form
the backbone of trade and commerce, by being negotiable instruments.

However, despite such amendments in the existing law, we find that the
problem has not been solved rather it has been witnessed that there has been a
flood of litigation resulting from the amended Act and unnecessary legal
precautions, interpretations and time hurdles have eclipsed the entire spirit of
the enactment.

Suggestions

Keeping in view the peculiar socio - economic set-up of our developing nation,
some reformatory measures and changes may aid in enhancing the overall
efficacy, acceptability, viability and legal practicability of the law relating to
dishonour of cheques. So, the researcher proposes the following suggestions
regarding –

1 Proof of Bank Documents

The offence defined under section 138 of the Negotiable Instruments Act is
inherently technical i n nature and therefore for just and effective adjudication
of the matter, adducing the relevant bank record of the drawer’s and holder’s

178
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respective bank accounts becomes necessary in almost all cases. It can be
recommended that there should also be an amendment in the Bankers’ Books
Evidence Act, 1891, to avoid the time lag, i t should not be necessary to
summon the bankers of the accused to prove the reason for return of cheque.
Section 4 of179 the Banker’ s books Evidence Act should be amended and it
should be provided that the duly stamped memo relating to return of the cheque
duly signed by the Manager/responsible officer shall be deemed to be
authenticated proof for the purpose of proving the reason for the return of the
cheque and no further proof shall be needed for recording the pre-
summoning evidence. This has not been done and in fact it can be stated that it
has come as a curse for the banker in the sense that it has become difficult for
the bank to comply with the requirements of the courts and it has also become
tedious to arrange to send on each date of hearing a representative of the banker
with the relevant records and copies of the documents and statements of the
accounts under the Bankers’ Books Evidence Act. The branch of the bank may
be at place ‘X’ and the court where the record is summoned may be ‘ Y’ or
at place ‘ Z’ situated at a distance of more than hundred kilometers and the
record shall have to be sent to the said court on each date of hearing with the
representative of the bank. This is well known that there are more chances of
an adjournment of the date of hearing rather then the probability of the case
being taken up. This proves to be time consuming and expensive process for the
bank and creates conveyance and manpower problems relating to shortage of
staff and employees.

For commercial institutions and banking set -ups it has become a life-sized
problem as day- in day- out such financial bodies are being flooded with a
number of summons from different courts whereby the representatives are
required to be present on the date of the hearing so that their statements on the
basis of the records summoned, may be recorded in court for the purpose of pre
-summoning of the complainant. The original cheques, returning memos, debit
advice and such like documents are to be proved by the bankers and it is only
after this part of the game is over successfully that the summons to the accused
can be sent.

It is a matter of common experience that usually Rs.20 to 25 are deposited for

179
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the clerk of the bank to come and give evidence usually, bank has to pay about
Rs. 100 as reimbursement to the clerk who is away on the date and is not
expected to return back to duty on the said day and thus bank suffers a
monetary loss to the extent of the amount which is not reimbursed by anybody
and there is accumulation of work on this account and other customers
suffer. 180 It is not necessary that a person who goes to the court with the record
of the bank summoned will come back after having his statement recorded on
that very day. Experience shows that on most of the dates there are no chances
of his going back to the bank on account of the reason that his statement
could not be recorded as either the court is on leave or the opposite counsel is on
leave and these matters are being dragged on from one date to the other
without any progress in the complaint failed against the accused as
procedural delays and the legal technicalities provide a long rope to the accused
to escape punishment. The entire process proves to be tiresome, harassing,
cumbersome and minimum time period required is about 2 /3 years in most of
the cases.

It is submitted that it is also common place that on date fixed for hearing,
the entire summoned evidence is available but the complainant is not present
on the ground of some exigency and as such no progress can take place. There
is also the issue of bankers to maintain secrecy. Usually, the complainant
summons the records of the banks for the entire month and although the
complainant and the court are concerned only with one date, yet the
information about the accounting details of the accused is summoned for all the
dates in that particular month. Besides the above questions, there are a number
of tactics adopted by the accused to get the matters delaye d for longer periods
viz. strike or suspension of work by lawyers, illness of counsel or his pre-
occupation in some other urgent work, record not forthcoming on a particular
date from any of the banks for a request having been received due to any reason,
t ime not being available with the court for recording the evidence due to
heavy pendency.
It is submitted that although section 146 of the Negotiable Instruments Act has
brought a welcome change in respect of this problem by attaching a

180
.N.Gupta, Dishonour of Cheques – Liability Civil & Criminal, at 323 (2006).
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presumption of trut h to slips and memos issued by banks nevertheless a more
comprehensive amendment is called for in this regard. Apart from slips and
memos, even the computerized bank account statements, debit advice notes,
letters of intimation of dishonour sent by the bank to the holder and such like
other documents which are in routine required to be adduced in evidence in
almost all cases under section 138 of the Act, should be made per se
admissible in evidence so that formal proof of such documents by way of oral
statement of bank representative in court can be dispensed with. This would
not only prove to be a substantial aid to the financial institutions but would
also relieve the litigants and the courts of unnecessary procedural hurdles and
delays. 181

2 Interpretation and Application of Law

The legislative intent behind inserting the provisions of sections 138 to 147 in
Negotiable Instruments Act has to be taken into sight while interpreting the
relevant sections as well as to seek solutions for resolving the problems which
arise while dealing with the questions of law and deciding the cases. A crucial
issue which casts and outcropping protrusion is whether strict or liberal
approach should be adopted in interpretation of the statute in this regard. It
cannot be denied that there are a handful of inherent defects, deficiencies and
shortcomings in the enacted provisions of law and procedure to be followed.
Due to varied and contradictory opinions expressed by different High Courts
in India on a particular point, it so metimes become difficult for trial courts
to do justice in real sense. Trial courts are bound by the law laid down by
Supreme Court or its own High Court, however where on a particular issue
or point there is no settled law of Supreme Court or one's own co ncerned
High Court, then due to contradictory views expressed by various higher
forums, complications arise regarding offence under section 138 Negotiable
Instruments Act. It needs to be reiterated that the offence is very complicated one and
complainant has to be very careful on each and every step for the success of the
prosecution of the drawer accused. Thus first of all it is to be seen whether
the court has to take lenient or strict view while giving interpretation to
various provisions of the law of prosecution under Section 138 of the Act.

181
.N.Gupta, Dishonour of Cheques – Liability Civil & Criminal, at 323 (2006).
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Where the legislature lucidly puts forth its intent in the scheme and language
of the statue, it is the functional responsibility of the court to give effect to the
same without delving into i ts wisdom or policy and without substituting,
adding or implying anything which is not in sync with or consistent with the
expressed intent of the law given. Where the statute's meaning is
unambiguous, words cannot be interpolated as the thought intended to be
conveyed might be altered by the addition of new words. They should not be
interpolated even though the remedy of the statute would thereby be enhanced,
or a more advantageous or legally plausible result would occur. Even where
the meaning of the statute is clear and sensi ble, either with or without the
omitted word, interpolation is improper, since the primary source of the
legislative intent is in the language of the statute.

However circumstances and exigencies varied and numerous may arise on

account of several consider ations, which could not have been fully visualized
by the legislature at the time of framing of the statute. Hence while
interpreting the statute, in all fairness, the basic object and purpose for
which the Act was enacted should weigh in the judicial mind. If the foundation
or the purpose intended by the law enacted gets disclosed in the proceeding
initiated, merely because a particular contingency not vitally irreconcilable,
had not been expressly stated, that would not suffice, to throw out the
prosecution, even at the threshold.
It needs to be ascertained whether a liberal or strict approach is to be taken
in respect of a particular point involved in interpreting the same. Some of the
aspects may invite strict interpretation whereas some provisions may be
liberally used. It can be said that liberal approach can be adopted while
dealing with the procedural aspect but for invoking penal provisions, strict
approach should be adopted. Whether strict or liberal interpretation has to be
adopted, i t must be taken care of which help us in reducing or minimizing the
defects, loopholes and technicalities of the law and to do effective justice to
both parties and society at large.

3 Statutory Bar of Limitation

The time period for taking steps before filing complaint and thereafter for
initiating the prosecution is so short that sometimes due to justified and

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genuine grounds on the part of complainant, honest prosecution may fail which
gives unrich and unjust benefit to the cunning and clever drawer.
Complainant sometimes due to reasons beyond his control is not able to send
the notice of demand within 30 days of receipt of intimation about dishonour
of cheque or fails to file the complaint within one month from the date of
accrual of cause of action. Earlier complainant was totally barred to launch the
prosecution after expiry of period of limitation and no extension of
limitation was to be granted but now on showing sufficient cause, court may
condone the delay due to adding of proviso in Section 142 of the Ac t ,
however still a great burden lies upon complainant to disclose the sufficient
cause. The discretion is vested in the court whether to allow the condonation of
delay in filing of the complaint or not.

Similarly the time range of 15 days from the date of receipt of notice of demand
for making payment of the cheque amount to escape culpable liability, is also
not sufficient. An honest drawer, to make payment of outstanding dues,
especially where the amount of dishonoured cheque is very high, may require
mor e time for making arrangement to make payment through arrangement of
loan, sale of his assets, business arrangements etc. Thus it is felt that the time l
imit prescribed for making payment by the accused should be sufficiently
increased. Though time for sending notice has been increased to one month by
the amendment of 2002 but it can be increased further and drawer can be also
given time of atleast three months to make payment.

It may be recommended that the period of filing of complaint in court is also

required to be increased to atleast 6 months from the date of accrual of cause
of action instead of period of one month at present because in business
community normally efforts for compromise may go on for longer period.
Settlement of amount due though dire ctly or through intervention of some
associations or influential persons most of time succeed but takes t ime. To do
justice to both parties and keeping in view their difficulties, the extension of
time period is required from the present one and the Legisl ature is expected
to take care of the fact and is expected to make suitable amendment in the law.
Similarly courts should be also liberal to exercise their powers to extend the

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limitation period for filing the complaint in court. 182

4 Speedy Trial and Set-up of Judicial Establishment/ Infrastructure

In India on an average, about 10 judges are functioning against one million

population. Establishment of more courts can be one major solution to take up
day to day trial of complaints under section 138 and effective disposal of these
cases would be possible in comparatively short time. Today the courts of
Magistrates are heavily overburdened and equipped with inadequate
infrastructure so find less time to effectively deal with the complaints under
Section 138 . It is required that special courts of Magistrates be established
to exclusively deal with complaints under Section 138 as this type of
litigation is increasing day by day and normal court of Magistrate who is
also looking after state cases and other matters finds no sufficient time to deal
with such complaints. Increase of strength of judges at least five times from
existing strength certainly would help in shortening the period of trial and
disposal of the cases.

Over the years there have been many important changes in the way cheques
are issued/bounced/dealt with. Commercial globalisation has resulted in
giving big boost to our country. With the rapid increase in commerce and
trade use of cheque also increased and so the cheque bouncing disputes.
Inclusion of additional forms of crime, for example, section 138 cases under
the Negotiable Instruments Act or section 498 - A cases under the Penal
Code, contributed a large number of cases in the criminal courts. To deal
with these types of cases we do not have additional number of courts, we do
not have additional infrastructure. In many States sufficient budgetary
provisions are not made for improving the infrastructure of the subordinate
courts, including additional improvement of existing courts, court complexes.

Several central statutes including the Negotiable Instruments Act have

contributed more than 50% to 60% of the litigation in the trial courts. These
enactments are referable to List I or List III of the Seventh Schedule of the
Constitution of India. Art. 247 of the Constitution enables the Union
Government to establish additional courts for better administration of laws

182
Ashwani Sarpal, Dishonour Of Cheque Criminal Law In Action , at 340 (2008).

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made by Parliament or existing laws with respect to a matter enumerated in the
Union List.

Mr Justice R.C. Lahoti, ex-CJI, (on the “Law Day” November 26, 2004) on the
matter of pendency of cases quoted the following from the speech of late Dr. L.
M. Singhvi, Senior Advocate and the then President, Supreme Court Bar
Association: 183

“Increasing institution of cases, mounting arrears, accumulating congestion in

courts and inevitable law's delays have given rise not to a body of scientific
and rational blueprints in terms of institutional organisation and procedural
methods or in terms of assessments of judicial manpower requirements, but to a
spate of alarm signals and dire shibboleths. If there are more and more
cases in courts, that is because we have a population explosion, we have a
more complex and friction- prone society, our dispute resolution and
conciliation system are bereft of effi cacy, we have increasingly greater
awareness of rights, and perhaps because we have more injustice and more
arbitrariness in our midst. The Governments are under an obligation to
provide an adequate machinery for justice, to appoint more judges and to give
them better emoluments and facilities, to build more courthouses, to enact
better laws, to devise better dispute resolution procedures, and to administer
more effectively and equitably, rather than to blame lawyers and judges for
the increase and proliferation of litigation. Courts in India cannot apply a
mechanical-statistical razor blade or wave a magic wand to wipe out the
enormous pendency of arrears. Nor can the courts afford to turn a blind eye or
a deaf ear to the rank injustices and incongruities of administration merely
because they have already too much on their hands. If the courts begin to do
that systematically, they might endanger the confidence and credibility they
have come to enjoy.”

The criminal justice system in the country is designed t o protect the citizens
of this country from the onslaught of criminal activities of a section of the

183
Presidential address by Hon'ble Mr Justice K.G. Balakrishnan, C.J., at National Seminar
on Delay in Administration of Criminal Justice System, 17-3-2007, Vigyan Bhavan, New
Delhi available at http://supremecourtofindia.nic.in speeches-2007.

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community which indulges in such acts. The outcome of any criminal
justice system must be to inspire confidence and create an attitude of respect
for the rule of law. An efficient criminal justice system is one of the
cornerstones of good governance. When we think of criminal justice system
it consists of the police, prosecuting agency, various courts, the jail and the
host of other institutions connected with the system. The State as a guardian of
fundamental rights of its citizens is duty- bound to ensure speedy trial and
avoid excessively long delays in trial of criminal cases that could result in
grave miscarriage of justice. It is in the interest of all concerned that the
guilt or innocence of the accused is determined as quickly as possible. But,
unfortunately, there are a large number of cases pending in various courts.
Various factors contribute to large pendency of criminal cases in the
subordinate courts. Speedy trial of criminal cases should be recognised as an
urgent need of the present judicial system in order to decide the fate of lakhs
of litigants. It will help enhance the faith of general public in the present
judicial system. In order to have a strong socio- economic system, it is
important that each and every state of trial of an accused should move at
reasonably fast pace. Speedy trial ensures that a society is free of such vice.

The challenges before the criminal justice system are to balance the rights of
the accused while dispensing speedy and effective justice. The criminal justice
system machinery must also meet the challenge of effectively dealing with the
emerging forms of crime and behaviour of the criminals. In the trial of
criminal cases a Judge should be a little more active and he can contribute to a
great extent in preventing the delay in the administration of justice. In most
of the cases, the blame for delay in administration of criminal justice system
is put at the door of the courts. Courts are over congested with petty cases
and many legislations are being enacted which result in filing of large number
of cases before the courts. Inclusion of additional forms of crime, for example,
S. 138 cases under the Negotiable Instruments Act or S. 498 - A in the Penal
Code, contributed a large number of cases in the criminal courts. Some of
the new legislations l ike, the Domestic Violence (Prevention) Act, have come
up which contribute some more cases to the criminal courts. To deal with the
see types of cases we do not have additional number of courts, we do not
have additional infrastructure. In many States sufficient budgetary provisions

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are not made for improving the infrastructure of the subordinate courts,
Presidential Address of Hon'ble Mr Justice K.G. Balakrishnan, Chief Justice of India, at
the National Seminar on “Delay in Administration of Criminal Justice System” held at
New Delhi on 17 March, 2007. including additional improvement of existing courts, court
complexes.

We require modernisation and computerisation of our criminal justice system.

In many States courts are functioning from rented places. The building
which was constructed for the purpose of residence is being used to house
courts. There should be sufficient sitting arrangement for the witnesses or the
clients. There should be suitable building for the proper functioning of the
courts. The prosecuting agency should be given sufficient facilities for the
court to conduct the cases. The accused and the witnesses should have resting
rooms if the trial has become lengthy. All this could be provided only if
there are courts with modern facilities. The States should gradually improve
the infrastructure and there must be sufficient budgetary allocation in each
year. Now the courts are provided only with budgetary allocation for the
payment of salaries of staff members of the courts and for day- to-day
expenses for running the courts. This situation could be changed, if sufficient
funds are allocated every year for starting new courts and also to improve the
conditions of the existing courts. The starting of Fast Track Courts have
helped to a great extent in disposing of the pending Sessions cases and that,
by itself, has proved that it is because of lack of large number of courts that
the pendency of criminal cases is on the rise .

Traditional concept of ‘ access to justice’ as understood by common man is

access to courts of law. For a common man, a court is the place where justice
is meted out. But the courts have become inaccessible due to various barriers
such as poverty, social and political backwardness, illiteracy and ignorance,
etc. To get justice through courts, one must go through the complex and costly
procedures of litigation. One has to bear the costs of litigation including court
fee, stamp duties, etc. and also the lawyers' fees. Apart from these, the litigant
loses much more in financial terms such as loss of income arising from
attending the court hearings. A poor litigant who is barely able to feed himself
will never be able to get justice or obtain redress for a wrong done to him
through courts. Further, a large part of the population in India is illiterate and

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live in abject poverty. Therefore, they are totally ignorant about the court
procedures and will be terrified and confused when faced with the judicial
machinery. Thus most of the citizens of India are not in a position to enforce
their rights, constitutional or legal, which in effect generates inequality
contrary to the guarantees of Part III of the Constitution. Large population,
more litigation and lack of adequate infrastructure are the major factors that
hamper our justice system. Regular adjudication procedures through the
constant efforts of Legal Services Authorities will act as catalysts in curing
these maladies of our system.

Time has come to think of providing a forum for the poor and needy people
who approached the law courts to redress their grievance speedily. However,
the delay in disposal of case s in law court, for whatever reason it may be, has
really defeated the purpose for which the people approach the courts for their
redressal. Justice delayed is justice denied and at the same time justice hurried
is justice buried. So, one has to find out a via media between these two to
render social justice to the poor and needy who want to seek their grievance
redressed through Law Courts. The Constitutional promise of securing to all
its citizens justice, social, economic and political as promised in the
Preamble of the Constitution cannot be realised unless the three organs of the
State i. e. legislature, executive and judiciary join together to find ways and
means for providing to the Indian poor equal access to its justice system.

Infrastructure for the Fast Track Courts is to be provided by the State

Government and the selection of the Judges is to be made by the High Court.
The scheme includes construction of new court rooms, appointment of ad hoc
Judges, Public Prosecutors and supporting staff and arrangement for quick
processors. It would be appropriate to have, our in-service Judicial Officers to
be appointed in these courts, after giving them promotions on purely
temporary ad hoc basis initially for two years, extendable by another two
years or ti ll they are promoted on regular basis. These appointments shall be
made as far as possible in Fast Track Courts. Their future regular promotion
shall depend on their performance in these Courts. Those officers who are not
found fit to travel on fast track, shall be off-loaded and sent back to their
regular cadre. It is a joint venture of the Central Government, State
Government and the High Court to tackle the problem on war footing.

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It is needless to say that realization of real justice needs cooperation o f all the
three wings of the Government with one single aim to reach out justice to
individuals and thus, maintain rule of law. Interaction between the three
wings of the Government is necessary to improve the justice delivery system
and such cooperation should be seen in day- to- day dispensation of justice.
Sessions trials in several courts in the country are held up because of
unwanted adjournments on just asking either by the defence counsel or Public
Prosecutor, not examining the witnesses within the scheduled time and the
non- cooperation of the prosecuting agency. There is a general complaint that
the police has no sufficient time or force, to serve in time the summons on the
witnesses and keep the under trial prisoners present in the Court, at the time o
f trial. There are instances coming to light that the offenders are sentenced
but sentences imposed, are not executed because the convicts had already
jumped bail and the police has no will and time to search them out.

Judiciary today is more deserving of public confidence than ever before. The
judiciary has a special role to play in the task of achieving socio- economic
goals enshrined in the Constitution while maintaining their aloofness and
independence; the Judges have to be aware of the social changes in the task of
achieving socio- economic justice for the people. The Indian judicial system
is constantly exposed to new challenges, new dimensions and new signals and
has to survive in world in which perhaps the only real certainty is that the
circumstances of tomorrow will not be the same as those of today. The need
of the hour is to correct misconception about the judiciary by making it more
accessible and more explicit, by utilising the resources available to improve
the service to the public, by reducing delays and making courts more
efficient and less daunting.

The Law Commission of India recommended setting up of Fast Track Courts at

Magisterial level with high -tech facilities. Huge backlog of cheque bouncing
or dishonoured cheque cases need to be speedily disposed of through this
measure, lest the litigants lose faith in the judicial system. Unless there is
sufficient number of courts for resolving cheque bouncing disputes speedily
and efficiently, the problem will continue to be alarming. Commercia l circles
in India and abroad must be assured a fast and efficient judicial system in
India.

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By expeditious disposal of the complaints most of the avoidable litigations
may not even be initiated. This would further avoid multiplicity of litigation
and wastage of precious court t ime. So keeping in view the object behind
the enactment, Delhi High Court in United Ink & Varnish Co. Ltd. v. State &
Ors. also ordered for constituting some special courts of Magistrates so as to
22
exclusively deal with the complaint cases under Section 138 of the Act.
Same opinion regarding establishment of more courts was again emphasized
by Delhi High Court in Khanna Hotels (P) Ltd. v. State so that one metropolitan
23
magistrate should not have more than 500 cases at a time. Division
Bench of Bombay High Court also in Prithviraj Ambalal Patel v. State of
Maharashtra held that increase of strength of judges is need of the day and
unless sufficient number of judicial hands are provided, the arrears of cases
cannot be reduced.

These directions certainly would help in clearing the backlog of pending cases and also
reduce the period of trial. Besides increasing the strength of judges and constituting
special courts, government should also adopt necessary measures for
providing sufficient court- staff including competent stenographers, honest
process servers, latest computer softwares and other infrastructure to the
courts to increase the efficiency of the entire judicial set -up.

Issuing a cheque which is dishonoured is crime in India. But we hardly see any
people being punished for bouncing of cheques. People are dissuaded to trust
bank cheques. This all because courts in India are awefully overburdened
with dishonoured cheque cases.

Legal experts are unanimous in their opinion that the pr esent system of
criminal jurisprudence is destined to fail if the backlog of cases is not
substantially reduced. Recently, the Law Commission of India mooted the
concept of “plea- bargaining”— pre-trial negotiations between the accused
and the prosecution in which if the accused agrees to plead guilty for the
charges levelled against him he would get in exchange certain concessions as a
quid pro quo , by taking a lenient view by the courts, particularly in cases of
lesser gravity. Actually, the courts have been practically following such a
practice, for several years, now.

A speedy trial is not only required to give quick justice but it is also an

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integral part of the fundamental right of life and l iberty, as envisaged in Art.
21 of the Constitution of India. The dispensation of justice has little meaning if
i t is not delivered in a reasonably short time, strictly speaking a delayed
justice, frustrating the cause thereof, is no justice at all. A good legal
system should not only yield proper and just solutions but also these
solutions must be had quickly and as infallibly as human agency can guarantee.
Delay is a great reproach, and the cry for speedier justice is heard from all
quarters, slow justice would be futile, over speedy justice is undesirable,
because the hurried justice implies buried justice, speedy disposal of cases
should not be construed to mean that cases should be disposed of quickly to the
determent of justice.

Speedy justice has always been considered the "sine qua non" of an effective
and efficient Criminal Justice System as basic premise of a criminal justice
system is that the punishment must follow the judgment of guilt and should
not precede it. Another basic precept of the Criminal Justice System is that
accused is presumed to be innocent till his guilt is proved beyond all
reasonable doubt by the prosecution. Therefore it is undesirable that the sword
of Damocles should not hang over the head of accused for indefinite period.
Speedy Justice is also essential in order to gain the confidence of the Public in
Criminal Justice System. So the good approach toward crime prevention and
control demands that the guilty should be punished while the events are still
fresh in the public mind. The need for Speedy Justice cannot be gainsaid in
Criminal Justice System to achieve the objectives of punishment and
correctional programs. The Right to Speedy Justice is not only the very
essence of an effective Criminal Justice System but is also consistent with the
concept of fair and impartial trial.

The Law Commission of India is of the firm opinion that considering the
alarming situation of the pendency of cases and the constitutional rights of a
litigant for a speedy and fair trial, the Government of India should direct the
State authorities for setting up of Fast Track Courts in the country, which
alone, in the opinion of the Law Commission, will solve the perennial problem
of pendency of cases, which are even summary in nature. The Law
Commission is of the view that the backlog of cheque bouncing cases need to
be speedily disposed of through this measure lest l itigants may lose faith in

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the judicial system. The commercial circles should have confidence that we
have quite faster judicial system. Accordingly, it has been recommended
that Fast Track Courts of Magistrates should be created to dispose of the
dishonoured cheque cases under S. 138 of the Negotiable Instruments Act,
1881. The Central Government and State Governments must provide necessary
funds to meet the expenditure involved in the creation of Fast Track Courts,
supporting staff and other infrastructure.

However, it cannot be lost sight of that establishment of additional courts at

any level involves enormous expenditure capital as well as recurring. The
appointment of old -time staff judicial as well as administrative, to the new
courts involves considerable recurring expenditure. On the other hand if
existing courts could be made to function in two shifts, with the same
infrastructure, utilising the services of retired judges and judicial offi cers,
reputed for their integrity and ability who are physically and mentally fit, it
would ease the situation considerably and provide immense relief to the
litigants. The Law Commission in its report dated 11/05/1988 had
recommended, interalia, introducing shift system in Supreme Court to clear
backlog of cases by deploying retired judges. Shift system is there in industrial
establishments and has already been introduced in educational institutions to
cope up with the increased demand. It is time that it needs to be introduced
in the courts. Though the duration of 2 nd shift could be lesser than the 1 st one.
The advantages would be:

 Minimum expenditure with maximum output .

 Existing court buildings, furniture, library and other

infrastructure and equipment could be used for the 2 nd shift.

 The pre- employment of retired judicial officers and

administrative staff would be far less burdensome to the
exchequer as they would be paid only the difference between
the salaries and emoluments payable to the serving judg es and
the officers of the same rank and their pension

 The induction of experienced judicial officers who enjoy high

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 reputation for their integrity and ability will add to the
credibility of the judicial system as a whole. With their rich
experience they will be able to dispose of cases quickly and
clear the area fast.

 The prospect of pre- employment after retirement of most

upright and efficient judges and judicial officers will act as
an incentive to the serving judges and judicial officers to
remain honest and discharge their duties to the satisfaction of
all concerned.

 Application of computer technology in court process .

Further it is submitted that a specified category of cases ( sub classified

according to subject matter) could be assigned to a particula r trial judge
having similarity with that branch of litigation, who will be in a better
position to decide the cases more efficiently and expeditiously. By assigning
the case to same judge from the date of institution, the judge will also be in a
position to effectively monitor the progress of the suit relates disposal. The
judge will also be in a position to ensure better compliance with the
procedural rules regarding production of documents , discoveries,
interrogatories, bringing the deeds of the key parties on record within the
period of limitation and sector of the controversies between the parties could
thus be narrowed down and the time for trial could be considerably reduced.

Small number of cases should be notified because in case of large number of

matters being on the board, the lawyers, the parties or even the judge may not
be in a position to have a realistic and practical estimate of the cases which are
going to be taken up for trial. Instead depending on the classification of cases
and duration for which they have been pending, if only a limited number of
cases ripe for hearing are notified for trial say five or seven, the lawyers as
well as litigants would be put to notice and the cases will go on trial and
adjournment applications will not be granted. It will also make the task of a
judge easier to manage the schedule. This will also reduce the burden on
lawyers while having to attend a large number of cases, most of which are not
to be tried in any case, but with uncertainty as to which cases would be taken up

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for trial.
6 Procedure to be Adopted by Court
The complaints under section 138 have to be tried and decided as per the
procedure laid down in the Code of Criminal Procedure. But the procedure
prescribed can be shortened so as to curta il unnecessary t ime snags and
obstacles. It is recommended that the necessity of recording of pre
summoning evidence under Section 200 Cr.P.C even by way of affidavit can be
dispensed with after filing of the complaint and accused ( drawer) can be
summoned straightway to face the trial. The version stated in the complaint
along with original documents should be treated as sufficient to call the
accused. Generally the offence under section 138 is based upon the
documentary evidence such as dishonoured cheque, bank memos, written
notice of demand, postal receipts, reply of the drawer and bills, cash memos or
other written proof of transaction if any. When original documents are filed
for perusal of the court with written version of the facts mentioned in the
complaint, then the necessity of recording pre summoning evidence or taking of
affidavit of complainant or his witnesses should be dispensed with for the
summoning of an accused atleast. A cut short legal procedure would save time
of the court and expenses o f the complainant and expedite disposal of case.
Generally delay occurs in trial of such cases in securing presence of the
accused in court. Difficulties arise mostly when the accused is resident of a
place falling beyond the jurisdiction of summoning court. As per law, generally
the service upon accused should be personally affected but there is no harm if
various other efficacious steps are also taken in addition to the existing steps
for service of summons upon the accused. In this regard now provisions have
been added for service of accused with summons of the court through speed post
and authorized courier as well.
It is observed that accused avoids the service through post as well as through
process server by getting favourable report manipulated. Such types of false
and manipulated reports can be avoided, if repeated and several different ways
of service are taken simultaneously. Strict actions are also required to be taken
against such postmen or process servers who manipulate reports. Sufficient
training should be given to the process server by apprising them about legal
formalities contained in relevant provisions in serving summons, so that their

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reports should not be discarded on technical defaults or irregularities.Another
way of service upon outstation accused is through the area Magistrate and
concerned police head. Service through fax, e - mail wherever available as well
as through the publication in newspaper, if complainant agrees to bear the
expenses can be made even at first instance.
Another method of cutting short of time and expenses is to try the case
summarily where i t is possible. However when case is being contested, then at
the start of the trial at the stage of recording plea of the accused on notice
under Section 251 Cr.P.C he should not be simply asked whether he pleads
guilty or not to be allegations but he must be asked specifically as per
requirement of the provision whether he accepts his liability, issue of cheque
and his signature on it, dishonour of cheque and the ground as given by his
banker, receipt of notice of demand and its date as well as fact of non -payment
of the cheque amount or not. The answers given and admissions of some facts
made at that stage would cut short the trial and limit the defence of the accused.

The law requires that at the time of framing notice under Section 251 Cr.P.C,
accused should be asked what defence he has to make so the reply and plea of
the accused on above questions and his defence plea also gives an opportunity to
the court to restrict the evidence of the parties and unnecessary cross
examination of the witnesses. If accused accepts his cheques, ground of
dishonour and receipt of notice of demand then the evidence of the bank witness
and postal authorities can be dispensed with as fa cts admitted need not be
proved under Evidence Act. Since the prosecution is generally based upon the
documentary evidence, so immediately after appearance of accused and before
taking any evidence, recourse can be taken to the provisions of Section 294
Cr.P.C also to admit or deny the documents of each other by both parties
which would also help in shortening of the trial.
As the cheque attracts the presumption of debt or liability under sections 118
and 139 of the Negotiable Instruments Act, so if other facts are admitted and
only absence of debt or liability plea is raised or it is pleaded by the accused
that he has discharged his debt and liability by making payment, then in
that situation, sequence of recording of evidence can be suitably changed and
accused can be ordered to lead his evidence first to rebut the p resumption of

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the law and thereafter if need arises, complainant can be allowed to lead
evidence in rebuttal. If accused fails to rebut the presumption of law then on
the basis of his admissio n of facts and failure to discharge the burden, judgment
of conviction can be pronounced. These steps help the court to fast disposal
of the cases.
The applications moved by the accused for discharge should be outrightly
dismissed without even calling for a reply from the side of the complainant
because in the procedure prescribed for summons cases, there is no provision
for discharge of accused at any stage. As observed by the Hon’ble Supreme
32
Court in Adalat Prasad v. Rooplal Jindal , the only remedy available to an
aggrieved accused to challenge an interlocutory order is under section 482 of
CrPC and not by way of an application to seek discharge. The offence under
section 138 of the Negotiable Instruments Act is punishable with imprisonment
upto two years and therefore is to be tried as a summons case. The procedure for
trial of summons cases is covered by Chapter XX of the Code which does not
contemplate a stage of discharge like section 239 and 245 dealing with warrant
cases. So as held by the Allahabad High Court in Sanjeev Rai v. State of U. P.
after referring to the decision of the Hon’ ble Apex Court in Subramaniam
Sethuram v . State of Maharashtra , it is not open to the accused to seek
discharge in a summons case and as such the summoning order cann ot be
recalled or revised in any manner.

6 Tackling the Problem of Blank Cheque

In a large number of cases, the accused raises the defence that complainant had
obtained a blank cheque from him as security and now he has filed a false
complaint whereas nothing is due to the complainant in respect of the
contract under which the said cheque was given as a security to him no doubt in
some cases it is alleged that blank cheque was given to someone else but he
has got the complaint filed by filing in the name of his own men as payee. It
has also been noticed that many private individuals who are directors of the
companies running the business of finance or the partners of a firm carrying on
the said business, file the comp laint under section 138 of the Negotiable
Instrument Act in the individual names. In suchlike cases the accused tries
to prove that in fact he had taken a loan from the financing institution, of
which the complainant is a partner/director and he has already discharged his
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liability in resp ect of said contract but the blank cheques obtained from him
by said concern are being misused by filing the complaint by the
director/partner in his individual name. On the other hand, the complainant
raises the plea that the instant loan transaction was independent transaction
and he had advanced loan to the accused in his individual capacity and the
cheque was issued to repay the said loan.

Since the accused admits his signatures on the check by raising the plea that
he had given a blank cheque to the complainant or one else, it becomes very
difficult for the accused to wrig gle out of such a case. Once the complaint
makes the statement regarding issuance of the cheque by the accused which
admittedly bears his signatures, the court has to raise presum ption under
section 139 of the Negotiable Instruments Act that the cheque was issued by
him to discharge his legal l iability. Therefore, there is no option before the
court except to convict the accused. Sometimes the complaints are filed after a
period of about 3 to 4 years of the settlement of the earlier matter in
connection with the blank cheque allegedly given by the accused.

No such problem can arise when all the columns of the cheque are filled in
by the accused in his own handwriting. The problem ari ses only when the
columns of the cheque are filled in the writing of someone else. It is difficult
to find out a solution to suchlike problem. When all and sundry can get the
cheque book after opening the account with a bank, the misuse of this provision
c annot be prevented. When a poor person is in need of the money, the creditor
can easily obtain blank check from him on account of his dominating
position in the transaction. The undersigned would like to share her own
experience while holding special court with regard to cheque bouncing cases.

It was observed that many financial institutions like GE Countrywide

,ICICI, Muthhoot Fincorp, Mittar Finance, Jaidka Finance etc. increase
litigation pertaining to section 138 by giving loans to the needy and at the
same time those people are made to sign number of blank documents and
cheques for a very small amount which is the installment required to be paid
by them, and in case of default of a single installment these financial
institutions keep on filing cases every month for each and every single
default which multiplies the pendency of the cases under section 138 of the
Negotiable Instruments Act by many t imes. It has been observed by the
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researcher while holding the court that approximately 400 to 500 complaint s
pertaining to these small amounts are instituted every month in the court of
Chief Judicial Magistrate in some districts or in the regular courts in o
there districts which on perusal shows that the amount of cheque involved in
these cases to be as low as Rs. 1000/-. The cumbersome process of court has to
be initiated by the alread y overburdened court staff which is busy while
dealing with these cases . Further perusal of record in these cases shows
that many documents are found on the file which are blank signed documents
obtained by the financial institution from those people who are in need of loan
and these documents are later on exploited to achieve mischievous designs
of the financial institution. The present researcher has given considerable
thoughts to find out some solutions to this problem and some suggestions in
this regard are submitted as under.

According to the researcher, first of all, some effective steps are required to
be taken to curb the practice of obtaining the signatures/thumb marks of the
debtors by the financing institutions on the blank printed forms and other
documents. It should be made mandatory for financing institution’s that all the
documents should be got filled up properly before obtaining the signatures of
the debtor thereon. The legislature should introduce a provision to lay down
that the obtaining of the signature/thumb impression of the debtor on blank
documents including cheque would be an offence of punishable with
imprisonment or fine. Some authority should be empower ed to check the
record of financial institutions at random basis to find out if these are
obtaining the signatures of the thumb impression on blank papers or not and to
look into the complaints of this nature from the public.

The second suggestion in this regard is that it should be made mandatory for
the account holder to fill in the counter foils at the time of issuance of the
checks. Further there should be a provision for verification of the counter foils
of every account holder by an officer of the bank after every month. The
said officers should make an endorsement regarding the number of cheque
issued by the account holder at the time of inspection.

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No doubt, even this system may not prove to be foolproof as the dominating
creditor may even remove the counterfoil from the cheque-book and
sometimes even the mysterious account holder may himself remove the
counterfoil from the cheque - book to get its benefit. However even then
suchlike provisions will check the problem to a great extent. If a
counterfoil is found missing by the bank authorities at the time of verification
of the counterfoil it should be made obligatory for the bank officials to get the
version of the account holder regarding said foil and give notice in this
regard in the ledger so that i t becomes a part of the permanent record of the
bank. When the cheques are sent through post, usually covering lette r is
sent with the cheque. In those cases, the complainant can produce the said
covering letter to show that the cheque was sent by the accused. Moreover,
experience shows that this problem arises more or less in the cases relating to
financial institutions. If suchlike provisions are made, the court will be in a
better position to find out as if the cheque was really issued by the accused to
t he payee to discharge his liability towards him or complainant has misused
the blank cheque obtained by him and in those cases where the counterfoil is
missing a note given by the bank authorities in the ledger of the account
holder can be taken into consideration by the court. If a payee is vigilant
enough and he takes care that the counterfoil is aptly filled in by the drawer of
the cheque, he can prove his case just by asking the drawer of the cheque to
produce a counterfoil of the court. If such a proce dure is adopted, the
problem regarding the misuse of blank cheques can be controlled to some
extent as a court will be in a position even if to find out the period during
which said cheque was issued.

7 Settlement and Compromise

Although the offence under section 138 has been made compoundable by
virtue of provisions of section 147 of the Negotiable Instruments Act, but it
cannot be denied that Herculean efforts are required to achieve the object of
compoundability. Practically due to efforts made by the court or otherwise,
more than 50/60 percent cases are compromised as soon as accused appears

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in court. Either he pays the amount due or reaches at settlement of any other
type with the complainant who is generally interested in his amount rather than
punishing the accused. After getting his payment in lump sum or in
installments the complainant withdraws his case. Thus certain simple steps,
interest and efforts on the part of the court at the initial stage for persuading
the parties to reach at settlement can be one of the best modes to reduce the
pendency of such cases. The Court of Magistrate should be conferred more
and rather powers of Civil Court to induce the parties to reach at
compromise and fix installments to be paid by drawer accused of the cheque
amount to the complainant, if he is unable to pay the amount in lump sum.

8 Alternative Dispute Redressal Systems Cases under section 138 should be

compulsorily referred to the Alternative Dispute Redressal Systems atleast
one to explore the possibility of settlement between the parties. Lok Adalats,
Mediation and Conciliations Centers can and infact do play a vital role in
helping the parties in reaching an amicable settlement.

The philosophy of alternate dispute resolution system is well- stated by

Abraham Lincoln " Discourage litigation persuade your neighbours to
compromise whenever you can. Point out to them how the normal winner is
often a loser in fees, expenses, cost and time".

Litigation does not always lead to a satisfactory result. It is expensive in terms

of time and money. A case won or lost in a Court of law does not charge the
mindset of the litigants who continue to be adversaries and go on fighting in
appeals after appeals. The Alternative dispute resolution system enables the
change in mental approach of the parties. There is a long and unbroken
tradition in India of the encouragement of dispute resolution outside the
formal legal system. With the advent of the British Raj, the traditional
institution of disputes settlement fell into disrepute and were gradually
substituted and supplanted by the formal legal system, which was introduced
in India by British. This substitution and supplanting virtually affected the
traditional or non- formal legal system. After independence and against the
backdrop of the failure of the formal legal system to bring justice and rule of
law to the doorstep of the millions of impoverished and underprivileged
citizens, there was a renewal of the traditional form of dispute resolution.
Today, therefore the question before us is not the substitution of one forum
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or one system of dispute resolution for the other, but of examining and
choosing the right mix of the formal legal system and the alternative
dispute resolution procedure. The substantial advantages of the alternative
dispute resolution procedures are speed, flexibility in scheduling the hearing,
reduction in the litigation costs due to quicker termination of proceedings,
freedom of the parties to choose a referee with particular experience or
expertise and being freed from the random assignment of judges under the
judicial system of the state and last but not the least the importance of
secrecy which private hearings afford. The public at large also benefits, as
these disputes no longer crowd and clog the public docket and often utilize
existing judicial resources more efficiently e. g. services of retired judges
whose knowledge and experience represents an important untapped resource
of law.

The Alternative Dispute Resolution recipe, therefore involves a departure of

what the philosopher Edward De Bona called vertical thinking and adoption of
lateral thinking viz . the throwing up of new ideas and testing their efficiency.
Like all other precepts alternative dispute resolution is also not stagnant in
content and continuous endeavor has to be made to introduce new solutions
and procedures to make it more efficacious, result oriented and relevant to the
needs and aspirations of the society where it is sought to be applied.

Most important and vibrant alternative dispute resolution system in India is

through Lok Adalats. The concept of Lok Adalats has advantage on account of
its simplicity and the speed with which the cases are disposed off by way of
compromise. This movement of Lok Adalats has gathered such a momentum
that it has become very effective way of settling the disputes, not only it had
achieved popularity and public acceptance but it has got the legal sanction.
Hence we find that at all levels from the Apex Court judges to the honorable
judges of High Courts, the emphasis is being laid on holding, more and
more number of Lok Adalats to dispose of as many disputes as possible
including disputes at pre l itigation stage.

The word ' Lok' has been profusely used in political contents and made use of
by political parties as a part of their appellations. In the phraseology " Lok
Adalats" both words namely " Lok" and "Adalats" are equally thoughtful and
profound and influence the purpose of each other. "Lok" is a word of wide
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connotation. Apart from signifying th e people in general, it conveys the
abiding sense of supremacy and ultimate authority of the people especially in
a democratic set up like ours. The word "Lok" prefacing the word Adalat
would therefore influence the meaning of latter by requiring it to be an
institution not of formal and static significance inspiring awe in the minds of
the people, rather to be one entirely committed to serve the aspiration of
speedy justice of people with a missionary zeal. The aims, objectives and
raison- d- etre of such Adalats must ultimately be judged and evaluated at the
touchstone of the lofty concept of "Lok" even its functioning and methodology
must be inspired by and must translate into practice, the hopes and
aspirations of "Lok". In Lok Adalats, the " Lok" content i.e. the public
opinion aspect and the "Adalat" content i.e. the accurate thorough
deliberation aspect have to be judicially blended and balanced.

Presently many states in India have introduced Lok Adalats for urban and rural
areas. These Adalats decide cri minal, civil, and revenue cases pending
before the law Courts by mutual consent of the parties, without going into the
procedural details thus ensuring Speedy Justice. Lok Adalats have worked
very well and satisfactorily in our country ever since 1987 , when the concept
of Lok Adalat has been giving statutory recognition. The concept of Lok
Adalat is gaining popularity. Then it is sufficient to say that it has made
substantial contribution in taking justice to door step of common man and
providing for speedy justice. But i t is not able to achieve its objectives to the
fullest extent due to inherent limitations of Criminal Justice System like
compounding of offences therefore permitting the compounding of more
offences under CrPC is the need of hour to achieve the aim of speedy t rial
and success of Lok Adalats, so that it truly would become the savior of our
legal system.

It may be apt to add here that in India, the Panchayati Raj Institution has been
in existence from ancient t imes. In the past, the scope of Panchayati Raj
system was conferred to solve social problems with the help of few senior
members of village called Panchas. The British rule caused irreversible
deterioration of these institutions. After independence, the first Prime
Minister of India Pt. Jawahar Lal Nehru adopted American block model to
secure the part icipation of people. The Indian Constitution made special

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mention of Panchayati Raj institutions under the directive principles of state
policy. Article 40 of the Constitution says:

" The State shall take steps to organize village Panchayats and endow them with such
powers and authority be as may be necessary to enable them to function as a unit of self
government".

After a lengthy discussion and consideration for about 4 years, the

Parliament has passed two Constitutionals Amendment Act (73rd and 74th)
in 1993 to ensure the effective participa tion of rural and urban people in the
institutions of local self- government. The provisions of new acts are
contained in Article 243 of the Constitution which invest these institutions
with more power and responsibility functional and financial autonomy,
regularity in election and organization and constitutional recognition. After
passing of these acts, the rural and urban institution of local self - government
have received much needed constitutional recognition l ike state level legislatu
re and the union Parliament. Infact i t is a constitutional recognition of grass
root level democratic set up. The need of the day is that the Panchayati Raj
institutions should be given more teeth and even the power to decide petty
matters including cheque bouncing matters pertaining to meager amounts,
which would in effect mean taking the justice administration machinery to the
grass root level.

The Law Commission in i ts 154th report has devoted a separate chapter on

speedy justice in which it suggested and recommended the setting of Nyaya
Panchayats to deal with the ordinary crimes which are not serious and heinous
in nature. No doubt the simple procedure prescribed for the conduct of
proceedings before the Nyaya Panch ayats may ensure the expeditious disposal
of cases placed before them and also reduce the docket explosion in the
Courts. If petty matters are placed before the Nyaya Panchayats i t would
certainly relieve the workload of the judicial magistrate and they would be
able to devote more time towards the cases of serious nature. The constitution
of more and more Nyaya Panchayats would certainly be a positive step for
reducing input of fresh cases for trial in regular Cou rts. Similarly petty cases
like those pertaining to dishonouring of cheques of meager amounts which
forms a good part of cases pending in the Courts can also be diverted to these
Nyaya Panchayats for earliest and speedy disposal. Moreover on the spot
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disposal method can be adopted by these Nyaya Panchayats which would
help in reducing the volume of cases for trial in Courts. Another advantages
of these Nyaya Panchayats is that these suit the local needs and conditions.
The purpose of organizing them is to m ake arrangement for settlement of
petty disputes arising among rural citizens at the village level itself, without
procedural defects of legal systems and without any financial burden. So these
Panchayats can function as effective instrument of justice to the satisfaction of
the people and ensuring speedy j ustice.

In India rural mobile Courts can a major role in speeding up the process of
delivering justice to rural people at their door steps. The "Rural Zones" are to
be created in which the cases will be classified according to their nature,
contents and gravity. Based on these classifications it will be easy to dispose
them of without long legal entanglements. This can be achieved by setting up
rural mobile courts for which retired judges could be appoint ed. This setup
will encourage out of Court settlements and could reduce the work load in the
formal Courts. The budding lawyers and law students, could work in rural
mobile Courts and help in the speedy settlement of cases. The approach is to
provide speedy justice, people oriented, poor oriented justice either with
minimal cost or no cost, saving the people from getting entangled into lengthy,
costly and complicated judicial system which delays justice.

Organized legal aid everywhere is the outcome of the universal ideology to

create legal awareness among the lowly sections of the society and stretch the
utilities of law and legal services at the doorsteps of the destitute millions.
Besides such progressive notion the legal aid to be meaningful must be meant
for all poor and needy but not a few of a particular group. The original idea of
legal aid programme was that legal aid is to help an indigent litigant by
providing the service of lawyer in a Court free of charge or with a token fee.
Thus primitive concept of the legal aid service should be replaced with the
progressive view that legal aid services should both be preventive and
curative. Such services should comprise not only in helping a poor litigant in a
Court of law pitted against the rich opponent bu t also aiding him with
advice and assistance in resolving his dispute with his opponent by
negotiation, conciliation, arbitration and other amicable means. This mission
of legal aid service to its consumers is to discourage his foul litigating habits

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and i nstead, imbibe the disputing parties with sense of fellow felling and
searching of hearts to overcome the points of dispute with a policy of give and
take modern legal aid measures are social oriented the culture of the
contemporary legal aid moves is to minimize disputes, mitigate the impact of
such disputes and to ensure speedy justice.

8 Bail, Written Proof and Punishment

Although the offence under section 138 is an offence against a particular individual and not
a crime against the society at large nevertheless in view of the burgeoning number
of cases of dishonouring of cheques and the consequent loss being
occasioned to the commercial world, the idea of making the offence non -
bailable can be considered. This change would aid in procuring early pre
sence of the accused in court and would also cast a deterrent effect on
prospective defaulters.

Number of instances can be quoted where stolen or lost cheques duly signed
are misused. Similarly blank signed cheques can be obtained by the creditor
or anti -social elements from the drawer by using methods of coercion, fraud,
or undue influence that causes unnecessary harassment to the drawer in facing
prosecution for no fault on his part. He is already a victim of misdeeds of
others and circumstances. He is further crushed under the wheels of justice
due to presumptions of law against him which increases his mental agony
besides putting him under unnecessary financial burden. Thus to avoid such
type of instances and to minimize misuse of cheque obtained by wrong and
illegal means, it is necessary that suitable amendments be made in the
provision to make it compulsory that loan, business transaction etc. which
attracts payment through cheques be reduced in writing duly signed and
accepted by the drawer. Such written mode of transaction would not only clear
the intention of the parties and bring clarity in the transaction but shall be a
tool to avoid misuse of the cheques through unfair means and minimize
unjustified and unnecessary prosecution.

Punishment is a means of social control. This idea of inflicting pain or

suffering in awarding punishment has been modified in view of the modern
reformatory methods introduced recently in dealing with the criminals. It is
now generally acknowledged that the principal object of inflicting

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punishment should not be merely the prevention of the offences but also the
reformation of the offender.

The basic idea is to reform the offenders and to rehabilitate them as

responsible members and law abiding citizens of the society. An amount of
severity might be quite appropriate in certain cases while i t might be quite
uncalled for in the others. Punishment would indeed be a greater evil if the
effects in a given case are l ikely to result in hardening the offender.
Therefore sending t he accused behind bars in default of payment of fine or
compensation should depend upon the capacity and financial status of the
accused. No useful purpose would be served, is accused is sent to prison
because of his genuine inability to pay the fine or compensation being a
poor person. So such circumstances should be given due weight at the time
of awarding punishment by the court and maximum possible efforts should be
made to minimise the grievance of both the parties by striking a balance
between the two .

Offence under Section 138 is made a deemed offence and intention to commit
this offence is not to be seen while prosecuting and punishing accused whereas
normally all other criminal offences require the basis ingredients of the guilty
mind at the time o f committing offence. However, if after issue of cheque due
to loss in business, natural calamity or circumstances beyond his control,
accused is unable to pay the amount of the cheque after receipt of notice or
during trial, will i t be justified to punish him and imprison him simply on
the ground that he is unable to pay the amount though his intention is clear and
he is an honest person?

Thus it is desirable that ingredients of guilty mind i. e. mens- rea should be

made a part of this offence. There is no harm if an accused who is a cheater
and cunning person be convicted and punished but an innocent person who
is ready and willing to discharge his dues but was not able to pay the amount
due to subsequent poor financial condition is made a scapegoat and puni shed
then that shall amount to miscarriage of justice and mockery of law. Hence it
is essential that intention of the accused regarding his willingness to
discharge his debt or liability must be made a basic ingredient before
prosecuting and punishing him.

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To conclude, there is no doubt that law of prosecution of drawer as
incorporated in the Negotiable Instruments Act under Section 138 is very
useful and important but due to the complexities and technicalities involved in
the same, there is an inherent tendency of rejection of genuine claims on
account of minor errors, defects and technical points. As a result of this the
larger interest of justice gets buried under the statutory provisions and the
courts are also rendered h elpless as the words of the statute have to be
interpreted strictly without any interpolations. Therefore in the present arena
of expanding commercial horizons, the law relating to dishonour of cheques
needs to be modified in the interest of justice and fo r the welfare of the
society to some extent to make it a perfect law.

The glory of justice and the majesty of law are created

not just by the Constitution – nor by the court- nor by the
officers of the law – nor by the
lawyers – but by the men and women who constitute our
society – who are the protectors of the law as
they are themselves protected by the law.

-Robert Kennedy

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 BIBLIOGRAPHY

II. BOOKS

1. Sarpal, DISHONOUR OF CHEQUE CRIMINAL LAW IN ACTION, Second

Revised Edition, Chawla Publications (P) Ltd. Chandigarh, 2008

2. S.N.Gupta, DISHONOUR OF CHEQUES – LIABILITY CIVIL &

CRIMINAL, Fifth Edition, Universal Law Publishing Co. New Delhi, 2006

3. S.Krishnamurthi Aiyar, LAW RELATING TO THE NEGOTIABLE

INSTRUMENTS ACT, Eleventh Edition, Universal Law Publishing Co. New
Delhi, 2012

4. Sen Gupta, NEGOTIABLE INSTRUMENTS ACT, 1881, First Edition, Kamal

Law House Kolkatta, 1998

5. Sethna, LAW RELATING TO NEGOTIABLE INSTRUMENTS, Seventh

Edition, published by Orient Publishing Company Allahabad, 2007

6. Sharma and Magos, THE NEGOTIABLE INSTRUMENTS ACT, 1881, Fourth

Revised Edition, Unique Law Publishers Ahemdabad, 2005

7. A.N.Saha, LAW OF DISHONOUR OF CHEQUES, Second Edition, Orient

Publishing Company New Delhi, 1999

8. Himanshu Maheshwari, DISHONOUR OF CHEQUES, First Edition, Universe

Law Publication Jodhpur, 2000

9. Chander Mohan, DISHONOUR OF CHEQUE, First Edition, Cee Emm

Publishers Chandigarh, 2006

10. Ranganath Misra, BHASHYAM & ADIGA'S THE NEGOTIABLE

INSTRUMENTS ACT, Eighteenth Edition, 2008

11. Dutta, COMMENTARY ON THE NEGOTIABLE INSTRUMENTS ACT,

1881,2013

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 12. L.C.Jain, INDIGENOUS BANKING IN INDIA, Macmillan and Co., 1929

13. John Burke, JOWITT’S DICTIONARY OF ENGLISH LAW, Second Edition,

1977

14. Oppe A.S., WHARTON’S LAW LEXICON, Fourteenth Edition, 2001

15. M.S.Parthasarthy, CHEQUES IN LAW AND PRACTICE, Sixth Edition,

Universal Law Publishing Co. Pvt. Ltd., 2003

16. Avtar Singh, NEGOTIABLE INSTRUMENTS, Third Edition, Eastern Book

Company, 2016

III. DICTIONARIES

1. Black’s Law Dictionary

2. Corpus Juris Secundam

3. New Webster Dictionary, College Edition

4. Oxford Law Dictionary

5. Wharton’s Law Lexicon

6. Dictionary of Banking

IV. JOURNALS

1. All India Reporter (AIR)

2. Criminal Law Journal (CriLJ)

3. Recent Criminal Reports and Recent Civil Reports (RCR)

4. Supreme Court Cases (SCC – online version)

5. Economic and Political Weekly

6. Journal of Indian Law Institute (JILI)

7. Law Finder

8. Indian Law Reporter ( ILR)

9. Delhi Law Times (DLT)

10. SCALE
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V. BARE ACTS

1. THE INDIAN PENAL CODE, 1860

2. THE NEGOTIABLE INSTRUMENTS ACT, 1881

3. THE CONSTITUTION OF INDIA

4. THE CODE OF CRIMINAL PROCEDURE, 1973

5. THE INCOME TAX ACT, 1961

6. THE BANKERS' BOOKS EVIDENCE ACT, 1891

7. THE INFORMATION TECHNOLOGY ACT, 2000

8. THE BILLS OF EXCHANGE ACT, 1882

9. THE U.K. CHEQUES ACT, 1957

10. THE U.K. BILLS OF EXCHANGE ACT, 1882

11. THE GENERAL CLAUSES ACT, 1897

12. THE BANKING REGULATION ACT, 1949

13. THE LIMITATION ACT, 1963

14. THE COMPANIES ACT, 1956

15. THE PUNJAB REGISTRATION OF MONEY LENDERS ACT, 1938

VI. NEWSPAPERS AND MAGAZINES

1. The Tribune

2. The Indian Express

3. The Time of India

4. The Economic Times

5. Practical Lawyers

6. Frontline

7. Outlook

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VII. ONLINE SEARCH ENGINES

1. Google.com

2. Rediff.com

3. Yahoo.com

VIII. WEBSITES

1. http://timesofindia.indiatimes.com/business/

2. http://articles.economictimes.indiatimes.com/

3. http://www.abajournal.com/news/articles/

4. http://www.legalserviceindia.com/articles/

5. http://www.lawyersclubindia.com/

6. http://www.indianexpress.com/

7. http://www.deccanherald.com/

8. http://brainyquote.com/quotes/

9. http://www.prsindia.org/billtrack/

10. http://www.livelaw.in/

11. http://www.livemint.com/

12. http://archive.org/

13. http://advocatekhoj.com/

14. http://lawcommissionofindia.nic.in/

15. http://manupatra.com/

16. http://lobis.nic.in/

17. http://yourarticlelibrary.com/

18. http://en.m.wikisource.org/

19. http://duhaime.org/Legal Dictionary/

20. http://supremecourtofindia.nic/

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*****

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